Commodity prices dropped together with other cyclical assets as the Federal Reserve’s latest policy announcement prompted panic selling across financial markets. The stronger US dollar added to the downward pressure. The US Federal Reserve indicated that the pace of bond purchases could be moderated toward the end of the year providing the economic recovery remains on track. Over the week investors reacted by …
ETF Securities Research
buying copper and platinum on price dips and continued selling gold. Silver saw two-way flows as investors remained divided on the metal’s outlook. To the degree that the Fed is right and the US economy is on a sustainable recovery path, we expect that once the knee-jerk risky asset sell-off subsides, investors will accelerate their buying of the more cyclical commodities.
ETPs see third consecutive weekly net inflows, up US$108mn over the period, as bargain hunters step in. Long copper ETPs saw a third consecutive week inflows as opportunistic investors take advantage of declining prices to build positions. Copper prices reached a seven week low last week as the Fed’s policy announcement outweighed the positive news that China’s copper imports in May rebounded from their lowest level in nearly two years. Imports surged 25% over the previous month, while global inventory levels continue to decline. On the supply side, another delay for the first shipments from Rio Tinto’s new Oyu Tolgoi mine in Mongolia underscores the uncertainty afflicting emerging market mine production.
Fed announcement on QE tapering prompts 12th consecutive week of gold ETP outflow. Physical gold ETPs saw another US$93mn of outflows last week, taking the total net withdrawals over the past 12 weeks to US$1.99bn. The Fed’s announcement of the potential gradual withdrawal of bond purchases later this year has seen a sharp increase in real interest rates and a strengthening of the US Dollar, both providing headwinds to gold price performance. Platinum, however, continued to receive inflows, with ETFS Physical Platinum (PHPT) receiving the bulk of funds, totalling US$7.2mn last week. Investors appear uncertain about silver’s outlook, with inflows of US$4.5mn into ETFS Leveraged Silver (LSIL) offset by outflows of US$4.9mn from ETFS Physical Silver (PHAG).
Agricultural ETPs see US$13.8mn of outflows, reflecting improving growing conditions. Expectations of improving crop yields are prompting investors to reduce exposure to the agricultural sector, particularly grains. The brunt of the outflows were from ETFS Grains (AIGG) and ETFS Longer Dated Grains (GRAF), which saw US$7.3mn and US$5.6mn of outflows respectively. Inflows into Brent crude ETPs overshadowed by outflows from WTI crude oil ETPs. While escalating unrest in the Middle East fuelled inflows of over US$6mn into Brent oil tracking ETPs last week, investors withdrew US$12.9mn of funds from WTI ETPs as US oil stockpiles experienced modest gains. Meanwhile, investors appear to be becoming more bearish on the outlook for natural gas, with inflows of US$2.2mn into ETFS Short Natural Gas (SNGA).
Key events to watch this week. This week is likely to be more subdued as investors take stock after the volatility generated last week by the Fed’s policy announcement. Economic data is light, with the main attraction likely the US durable goods orders report as investors try to gauge the progression of the US recovery in light of the Fed’s tapering announcement. In Europe a range of German indicators will be monitored for signs of a revival in economic health, including unemployment and retail sales.