As turbulence in emerging markets calmed, investors reduced positions in defensive assets such as gold and increased allocations to more cyclical assets such as silver, nickel, tin and lead. However, disappointing US jobs figures, below-expectations ISM manufacturing figures . ……
ETF Securities Research
and falling euro area retail sales served as a reminder that the global recovery remains fragile. Gold prices ended the week higher and will likely encourage more investors to increase allocations to the metal as it serves as a hedge against any potential stumbles on the growth recovery path. The European Central Bank emphasised in its post-policy conference that its stands ready to cut rates should economic data continue to weaken and place further disinflationary pressure. As the US Federal Reserve reduces its quantity of monthly stimuli, the ECBs reassurances were welcomed by the market and proved positive for cyclical assets.
Long gold ETPs saw US$107mn of outflows as investors turned to cyclicals and away from defensive assets. Last week’s outflows mark a break from the prior week when turbulence in emerging markets led to US$44mn of inflows. The outflows were the largest from gold ETPs since November 2013.
ETFS Physical Silver (PHAG) saw the highest inflows in four months as its price rebounded 3.8%. US$21mn of inflows into PHAG marked the highest level since October 2013. Silver, which has many industrial applications, is a cyclical precious metal and its price had risen alongside industrial metals such as copper, nickel, zinc and tin last week.
US$34.4mn of redemptions from ETFS Copper (COPA) trimmed the year-to-date inflows into copper ETPs to $47.8mn. Flows into copper ETPs have been generally strong this year so far, as investors have become sceptical about the estimates of supply surplus from many analysts that had dampened sentiment last year. Investors took profit last week as the price rose, marking the highest outflows since December 2013.
Henry Hub natural gas prices traded a volatile range last week, driving US$7.9mn out of ETFS Daily Leveraged Natural Gas (LNGA). The US gas price benchmark rose to $5.74/mmbtu before dropping precipitously to $4.99/mmbtu in one day last week. The benchmark ended the week around $4.8/mmbtu. Long positions had built up in the commodity after some investors feared supply shortages due to a colder-than-normal winter in the US. However, the violent price moves led to investors trimming positions and allocating US$4.1mn into ETFS Daily Short Natural Gas (SNGA).
Investors withdrew US$15.1mn from coffee ETPs as dry Brazilian weather prompts 13% surge in Arabica coffee prices last week. The lack of rainfall in Brazil’s main coffee growing areas (which produce 45% of world Arabica coffee) has decreased expectations of output during the 2014/15 coffee year , encouraging investors to take profits. Prices had fallen to a seven year low in November 2013 and active measures to reduce output such as hard-pruning of coffee bushes and cutting back on planting is expected to address the supply glut. Meanwhile, Sugar ETPs received US$2.2mn of inflows as prices rose 5.7%. Doubts about India being able to export its supply glut of sugar and dry weather in Brazil sent the price of sugar higher.
Key events to watch this week. Chinese trade, loan and inflation data will be closely watched for developments in the world’s largest consumer of industrial metals. The Bank of England’s release of its Inflation Report could be accompanied by clarification on its forward guidance as we advance on the 7% unemployment level that it considered consistent with raising interest rates. The release of the USDA’s World Agricultural Supply and Demand report will also provide clarity as to the effect of the unseasonably cold weather.
Note: All flow and AUM data in this report are based on ETF Securities ETPs to 6 February 2014 and are denominated in USD unless otherwise indicated.