ETF Securities: Global risks to lift gold prices higher

Gold ETPs garner inflows as dismal payroll data diminishes the probability of a June rate hike….

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– Oil ETPs recorded outflows for the eighth consecutive week after a lacklustre OPEC meeting.

– Longer dated commodity basket ETPs receive 2nd highest inflows in 2016.

Gold ETPs resume positive inflows after weak global economic data garnered renewed interest. Gold received a bid higher after employers in the U.S. added just 38k workers – well below estimates and the fewest in almost six years. More concerning were the revisions for employment gains in April and March were lower by a combined 59k jobs. The dilemma facing the Fed is that while the unemployment rate fell to 4.7% (below consensus), suggesting it should tighten policy. It seems the Fed are more likely to delay hiking rates in June (probability of a June rate hike currently stands at 4%) over uncertainty of whether Friday’s weaker payroll data reflected the wider trend in the US economy or just an anomaly. In light of the upcoming EU referendum and Spanish elections, we expect volatility to remain elevated and should help gold prices move higher.

Diversified commodity baskets ETPs receive the 2nd highest inflows in 2016 worth US$52.3mn. Improving fundamentals for commodities, a weaker dollar and rising volatility in global equity markets is supporting the case for investing in longer dated commodity baskets.

Oil ETPs recorded the eight consecutive week of outflows after a lacklustre OPEC meeting. Short Brent ETPs received record inflows of US$19.4mn, underscoring the bearish sentiment surrounding the OPEC meeting. Crude prices have nearly doubled since the start of the year as a consequence of the market rebalancing. In last week’s meeting in Vienna, there appeared to be a broad consensus among the OPEC members that declining production justified the failure to produce a production accord despite weaker members such as Venezuela and Nigeria pressing for output cuts. In a sign that the tension between members was thawing, OPEC members agreed to successfully appoint a new secretary general, Nigeria’s Mohammed Barkindo. On another positive note, some of the tensions between the Iran and Saudi Arabia were allayed after Saudi Arabia pledged not to flood the market with oil.

Aluminium ETPs post highest outflows since January 2015. Aluminium prices have failed to gain traction after rising to a 9-month high in April this year on concerns that producers in China will restart smelters just as demand in the country moderates. Despite the high restart costs, aluminium ETPs saw redemptions worth US$20.1mn, as production in China is expected to gain momentum and exacerbate weaker aluminium prices.

Key events to watch this week. Investors will listen closely to Fed Chair Yellen’s speech in Philadelphia on Monday to gain more clarity on the central bank’s take on Friday’s disappointing jobs report. Wednesday sees the release of Chinese trade data in addition to UK industrial production data that is expected to be lower than the prior year. Rising commodity prices is likely to have had a positive effect on producer price inflation in China, which is scheduled for release on Thursday.



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