Gold and silver rose last week despite the spike in US bond yields and a stronger US dollar. The silver price rose 1.1% last week, bringing gains over the past 8 weeks to 27%. The gold price also rose, bringing the total increase to 14% since its 5 July low…
ETF Securities Research
While the spike in US bond yields is pressuring many financial assets, precious metals took the latest release of the Fed’s FOMC minutes in stride, ignoring the Fed’s statement that it is “broadly comfortable” with moving ahead with reductions in bond buying in the near future. The fact that both gold and silver prices ended the week higher indicates that the start of Fed tapering may have already been largely been priced in to precious metals prices.
Profit taking drives US$77mn of outflows from precious metal ETCs. The strong rally in precious metals prices appears to have prompted some investors to take profits, with $77mn flowing out of precious metals ETPs last week. Despite the ETP selling, physical buyers – particularly in Asia – are taking up the slack. In the first half of 2013, UK exports of gold to Switzerland soared to 797 tonnes, equivalent to 30% of global mine production, with much of the supply likely coming from ETFs liquidations. Hong Kong imports of gold from Switzerland surged to 284 tonnes over the same period, evidencing a shift in gold demand from the West to the East. This demand surge, combined with subdued recycling and diminished mining productivity should provide a solid foundation for continued price appreciation in our view. The more industrially-oriented precious metals (palladium, platinum and silver) will likely continue to benefit from improving global growth.
ETFS Longer Dated Energy (ENEF) receives US$9mn as investors favour diversified energy exposure. A better-than-expected HSBC flash PMI for China last week helped boost energy prices last week as investors anticipate strong China demand. In addition, Libya’s output fell to the lowest level since the civil war in 2011, crimping global supplies. If the situation in Egypt escalates, we are likely to see oil prices rally higher.
Following the recent rise in Brent price, ETFS Brent (OILB) saw US$11mn of profit taking last week.
Copper ETCs see US$6mn of outflows on concerns the US Fed will start tapering in September. Nickel ETCs also saw US$5mn of outflows on rising stockpiles. The International Nickel Study Group foresees a 90 thousand tonne surplus on the market in 2013 on sluggish demand, equivalent to 5% of global consumption With the surplus for the first
seven months of the year totalling around 75,000 tonnes, the year-end total could well exceed the current estimates.
Coffee ETCs see US$4mn of inflows as recent slump in prices attract bargain hunters. Arabica coffee price hit a 4-year low last week on the back of a record crop in Brazil, the world biggest Arabica producer, and a weak Brazilian Real. At the same time, ETFS Corn (CORN) received US$2.3mn on drier-than-expected weather in the Midwest in the first part of last week. However, prices tumbled on Friday as rainfall improved the crop outlook in the area.
Key events to watch this week. This week investors will focus on a number of US releases, including house prices, consumer confidence and durable goods. The second reading of US Q2 GDP will also be monitored as any upward revision could trigger an early exit of the Fed. India Q2 GDP will conclude the week.