ETF Securities Commodity ETP Weekly: Strong price performance drives gold rush

Gold inflows surge to highest level since August 2015 as the metal remains one of the best performing assets year-todate. Oil inflows continue for the eighth consecutive week as investor’s position for continued recovery. Inflows into broad commodity baskets rose to a five week high as negative sentiment towards the beleaguered asset class begins to thaw.

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Gold ETP inflows of US$108.5mn last week were the highest since August 2015. Gold has been one of the best performing assets this year and is up 9.1% year-to-date, compared to S&P 500 (-6.3%) and Bloomberg Commodity Index (-3.2%). Volatile cyclical asset performance has driven investors toward the defensive asset, while a weakening US dollar has been supportive for gold’s performance in dollar terms. Although investor fears about weaker real economic data maybe somewhat misplaced, the headlines of weak durable goods orders and below-expectation payroll figures could add to US dollar negativity. We believe there will be a brief period in which US dollar will appreciate again as investors realize the their reading of economic data and market volatility does not tally with the Fed’s view that the labour market is tightening and price pressures are mounting. However, once the market and Fed thinking are once again aligned, US dollar will depreciate again (following a familiar historic pattern of selling-off when rate increases crystalise).

Long oil ETPs received US$37.9mn, marking the eighth consecutive week of inflows. Furthermore short oil ETPs saw US$10.2mn of outflows. Brent oil gained 1.7% as investors remained optimistic that Venezuela would be able to convince Saudi Arabia to help reduce production at their meeting yesterday. However, there has been very little sign that the meeting has yielded any results and we expect Brent to decline in the very short-term and return to trading at a discount to WTI. WTI, being a more US-focused benchmark, lacked the same tail-wind as Brent last week and fell 4.5% last week. Over the course of this year we, expect global oil to be in a supply deficit as non- OPEC oil production is cut while demand continues to rise, which will provide an upward catalyst to prices.

Inflows into diversified commodity baskets hit a 4 week high. After a rocky start to the year for cyclical assets, most industrial metals and a broad range of agricultural commodities posted a gain in the past week. That is an encouraging sign that markets are looking past the weakness in some economic indicators that were too heavily influenced by weather and other idiosyncratic factors. However, with the Chinese New Year starting and the associated lack of data published during this period, we could see some more volatility in industrial metal prices as speculation of Chinese weakness cannot be quelled by facts. Inflows across diversified commodity baskets amounted to US$21.7mn last week.

Profit-taking saw US$12.4mn flow out of aluminium ETPs. Aluminium prices bounced 1.1% last week and are up 4.6% in the past month. The recent price moves gave some investors an opportunity to take profit.

Key events to watch this week. Janet Yellen, will testify to Congress, providing investors some insight into the Fed Chair’s thoughts on the state of the US economy could be US dollar negative and gold positive in the short-term.



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