Gold miners soar on improving investor sentiment.

Overview Gold miners soared last week on the back of improving sentiment towards the gold price (it broke through its 200 day moving average last week) and increasing confidence that current stock prices largely reflect past and upcoming gold reserve valuation write-offs.….

ETF Securities Research

Equities generally saw improved sentiment with leveraged DAX, leveraged MIB as well as US small cap Russell 2000 and Shipping indices seeing large gains. In currencies the Pound rose strongly on improved growth sentiment while the Yen fell back on weakening Japanese growth, making GBP/JPY the best performing pair last week. We remain bullish on broad commodities, with our expectation that global growth will continue to recover. Accordingly, cyclical equities and cyclical currencies should also benefit from rising investor risk appetite in coming months.


Gold breaks through the US$1,300 threshold and the 200-day moving average on weak dollar. Soft economic data from the US, coupled with re-affirmed continued stimulus from the Fed, weighed on the US dollar last week, in turn pushing the gold price higher. Investors appear to have been reassured the Fed will maintain stimulus for a “considerable time” as “the recovery in the labour market is far from complete”, according to new Fed Chairman Yellen’s testimony to the Congress. The last time gold traded around these levels was in November 2013, before the Fed started tapering. The nickel price gained 3.0% last week, as the Indonesian government reaffirmed its intention to proceed with the planned nickel ore export ban as. Meanwhile, the corn price fell by 0.5% last week, after the US Department of Agriculture (USDA) announced it expects corn acreage to fall by just 2% in 2014.

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Gold miners rose nearly 11%, the highest weekly increase since August 2013. Last week saw the price of gold crossing the US$1,300/oz level for the first time since November 2013, lifting the DAXglobal® Gold Miners Index which saw the strongest weekly increase since last summer. With the US debt limit extended for another year and Janet Yellen’s pledge to continue with measured tapering, global equities have continued to rally last week, recovering from recent weakness. European leveraged equity indices surged 5.6% on average while the Russell 2000® Index was up 4% over the past week to Thursday. With the potential for upcoming key indicators in the US and in Europe to beat expectations, equities are likely to continue to receive support.

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Sterling (GBP/USD) reaches a 4-year high despite policy rates likely to remain at record lows until 2015. The Bank of England (BoE), in its next phase of forward guidance, indicated that policy interest rates won’t rise until more spare capacity in the economy has been absorbed and rates will only rise gradually at that point. The market cheered the BoE’s guidance with a vote of confidence, and sterling rose 1.9% against the US dollar as investors hope that low interest rates will maintain the positive growth momentum for the foreseeable future. However, at such elevated levels the risk to sterling remains on the downside and we believe most of the good news is priced in. The Norwegian krone rose 1.5% against the US dollar as inflation data for January surprised to the upside. At 2.4% versus 2.0% expected, the Norges Bank could build a case for raising interest rates.


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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.

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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.

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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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