Despite a worsening of the tensions between Russia and the Ukraine, gold ETPs saw outflows last week. However, net flows for the month remain strongly positive as investors remain positioned for a possible deterioration in Eastern Ukraine………
ETF Securities Research
While nickel and platinum saw some profit taking in light of recent price rises, with an El Nino event increasingly likely this summer investors favoured diversified agriculture exposure.
Investors seek agricultural exposure ahead of sowing season. ETFS Agriculture (AIGA) recorded US$5mn of inflows last week, the most in 5 weeks, as the probability of an El Nino weather event continues to increase. Last week the Australian Bureau of Meteorology forecasted there is a 70% chance Australia will be affected by this summer for the first time in 4 years. With prices of many agricultural commodities likely to rise as weather extremes disrupt production, investors favoured positions in diversified ETPs. At an individual level, corn and soybeans ETPs saw inflows of US$2.9mn and US$3mn respectively. Corn prices fell almost 6% last week after the USDA improved the outlook for the crop and now expects a 13mn tons surplus in 2014/15.
Profit taking drives US$9mn of outflows from palladium ETPs as price reaches the highest level since August 2011 on geopolitical tension. Meanwhile, despite various attempts being made by producers to find an agreement, the strikes in South Africa are still on-going and have begun to turn violent. While both platinum and palladium prices have been benefiting from the strikes, the palladium price has also been boosted by concerns that Russia may face trade restrictions resulting from its conflict with the Ukraine. With over 40% of world supply of palladium produced in Russia, any restrictions on Russian palladium exports would further constrain an already tight market. Reports on Friday that Russia’s state may be considering buying palladium, if true, would also likely be price supportive.
Gold ETPs see US$18mn of outflows on improved US economic outlook. However, net flows over the past month are positive and stand at around US$73mn as investors remain defensively positioned in light of the risks of a deterioration of the Russia/Ukraine crisis.
Nickel ETPs see over US$6mn of outflows as price plunges 11% in two days. However, most of the outflows were concentrated at the beginning of the week when prices reached a 27-month high on supply restrictions. The nickel price has rallied over 35% since the beginning of the year as an Indonesia’s export ban, coupled with fears of potential sanctions to be imposed on Russia, improved the outlook for the metal. A temporary suspension of production at Vale’s New Caledonia plant further contributed to lift prices at the beginning of the week. However, some investors appear to view the recent jump as excessive and prices corrected towards the end of the week. At the same time, ETFS Zinc (ZINC) saw US$1.7mn of inflows last week, the most in 6 weeks.
Key events to watch this week. This week the focus will likely be on the release of the FOMC minutes from the end of April meeting, as investors will try to assess the likely pace of further tapering and the potential for rate hike. Markit manufacturing PMIs for Germany, the Eurozone and the US will also be coming out this week and could offer an indication of the pace of the recovery in the industrial sector in those countries.