ETP Weekly : Commodity ETPS see largest inflows in over a year

Last week saw the highest inflows across commodity ETPs in over a year. Leading the trend were precious metal ETPs, which saw aggregate inflows of US$206mn. Silver received the second highest inflows on record, as its reputation as a leveraged play on gold appears to have attracted investors…….

ETF Securities Research

Continued interest in gold as a hedge against geo-political turbulence mirrored the rising interest in other haven currencies. Indeed demand for oil and some grains could rise on fear of supply tightness as the situation in Ukraine escalates. Silver, platinum and palladium will benefit if the pick-up in the global industrial cycle continues, while their correlation with gold may provide an additional tail-wind. Weighing on industrial metal demand was the expectation of poor Chinese manufacturing PMI data, which actually turned out marginally better than expected.
Long silver ETPs see their second highest inflows on record as its reputation as a leveraged play on gold appears to be attracting investors.

ETF Securities saw US$139mn of flows into long silver ETPs, just shy of the highest flows into the products seen in August 2013. In the past month silver has returned 7.8% versus 5.7% for gold and a small dip in silver prices appears to have been viewed as a buying opportunity.
Long gold ETPs see inflows for the third consecutive week. Interest in gold continued last week with inflows amounting to US$54mn, the highest since September 2013. Recent emerging market jitters coupled with ongoing geo-political and below forecast growth data from the US has reminded investors of the potential fragility of the global economic recovery.
Gold has been one of the first ports of call for investors looking to hedge against growth and cyclical asset correction risks.
ETFS Physical Platinum (PHPT) receives US$12.6mn of inflows, the highest since October 2013, as strikes at South African mines enter their sixth week. Platinum prices rose 2.4% last week and are up 6.6% year-to-date. Consensus estimates of 6-8 weeks of metal supply at the producers may have weighed on prices in the past but if the impasse is not resolved soon we could see further price upside on concerns of a supply squeeze. US and Japanese car sales data out this week could be a further catalyst for platinum group metal price gains.
Profit taking on ETFS Daily Short Natural Gas (SNGA) follows a 25.6% slump in the price of natural gas. Investors reduced short exposures by US$3.5mn on the back of sharp price moves. Meanwhile long natural gas flows were mixed with US$3.5mn flowing out of ETFS Natural Gas (NGAS), while at the same time ETFS Daily Leveraged Natural Gas(LNGA) received US$6.7mn of inflows.
Long Coffee ETPs see US$18.2mn of outflows on profit taking. Arabica coffee prices rose to a 15-month high as the worst drought in Brazil in 30 years threatens to reduce
output. After rallying 62% since the start of the year, we believe that the price has risen too far as many have underestimated the resilience of coffee bushes. With an El Niño weather pattern likely to develop in the second half of this year, we are likely to see less frost damage in Brazil and Colombia, which is likely to support coffee supply.
Key events to watch this week.  Any further deterioration of the situation in the Ukraine has the potential to further lift grain and energy prices and will be watched carefully by the market. In terms of data, the US manufacturing PMIs will be in focus to assess the progress of the economic recovery as will US non-farm payrolls. .Meanwhile, the Bank of England will have its first policy meeting since providing its second phase of forward guidance and the ECB and RBA meetings will also be watched closely, with dovish biases anticipated.




Although gold often gains during extreme events, the start of the first US Federal shutdown in seventeen years last week failed to lift the gold price. Investors appear to be looking through the storm and are focused on assets that will either benefit from the continuation of the global growth recovery or are generally uncorrelated with debt risk.  Cotton and sugar gained 2.3% and 1.8% last week, bouncing from lows hit in September, but without strong news driving the trend. Platinum and palladium fell 3.6% and 2.5% respectively. That comes despite a 17% rise in Japanese auto sales (to a 14-month high) and a 12.1% rise in UK car sales (to a five-year high). US car sales also remained brisk, despite the timing of Labor Day distorting the monthly statistics. Autocatalyts are the primary source of demand for the platinum group metals (PGMs). The strike that started two weeks ago was still on-going last week at Amplats, constraining the supply of PGMs.

    MA Weekly 07.10.13 1


US equities remain under pressure as the negotiations over raising the US debt ceiling continue. The S&P 500 fell for the second consecutive week as Republicans and Democrats continued to fight over the budget and debt ceiling. European equities have also been sensitive to the political turmoil in the US. The Euro Stoxx 50® Investable Volatility Index, which provides exposure to the forward implied volatility of the Euro Stoxx 50® Index, surged 5% last week, followed by the FTSE® MIB Super Short Strategy Index and the ShortDAX® x2 Index, up 3.5% and 1.4% respectively. Global equities are likely to remain volatile and under pressure as we get closer to the estimated 17 October hard deadline for lifting the debt ceilding.

MA Weekly 07.10.13 2


Safe haven currencies benefit as US fiscal negotiations drag on. The Japanese Yen (JPY) was the best performing G10 currency last week as investors sold risky assets and paid back JPY loans on growing concern about the lack of progress on US fiscal and debt negotiations.  For similar reasons the Swiss Franc (CHF) and even the Euro (EUR) also rallied against the US dollar last week. The British Pound (GBP) held up, continuing the trend of the past three months. However, towards the end of the week the currency showed some weakness, indicating the rally may be peaking. In our view, the GBP is one of the more overvalued G10 currencies and – despite recent rhetoric – has one of the more dovish central banks. We therefore believe the currency is particularly vulnerable to a sharp drop once growth data stop surprising to the upside.

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