Investor demand for gold ETPs resilient amidst fragile risk appetite; Profit-taking continues for crude oil ETPs despite higher prices, led by WTI products; Industrial metals ETPs face outflows as risk appetite wanes…
Gold ETP inflows dominate flows, totalling US$29.9mn. Gold prices ended the week lower by -2% as a weaker dollar and higher US retail sales offered signs for the Federal Reserve to revisit its dot plot. However investor demand for gold ETPs was resilient as risk appetite remained fragile. Data from the world gold council (WGC) highlighted global gold demand for the Q12016 marked the 2nd highest quarterly figure ever, up 21% y-o-y, backed by rising demand for ETFs, coins and bars. While demand for jewellery remained weak, we expect this trend to reverse as jewellery demand from China and India garners momentum as we progress into the year. European new car registrations are up 9.1% y-o-y in lock step with US and China, and should help buoy platinum and palladium prices known for their use in autocatalysts.
Tighter market situation for soybeans draws inflows into Agriculture ETPs. Inflows into broad basket agricultural ETPs hit US$22.9mn, marking its highest level since August 2015. This suggests a broad based interest in the asset class on the back of strong price gains among major agricultural commodities – soybeans, sugar and coffee. Soybean prices rose to a 21-month high subsequent to the release of a favourable report by US Department of Agriculture (USDA) that predicted a global inventory reduction of 3.8mn tons due to lower production caused by crop shortfalls in Argentina and Brazil. In addition a 33% annual rise in soybean imports by China helped support prices. Sugar prices surged 6.8% close to its 20-month high supported by reports of unfavourable weather conditions in Brazil and India and a strong Brazilian real.
Negative sentiment pushes industrial metal ETP outflows to US$67.5mn, their highest level since October 2014. Four of the bottom 5 performers this week were industrial metals. A firmer US dollar coupled with negative sentiment emanating from weaker global equity markets led to outflows from industrial metal ETPs. Although Chinese copper imports were 21% lower since the prior month, we believe the recent plans by the Chinese government to invest CNY 5tn in transport infrastructure over the course of three years bodes well for prices. While capex declines in most regions will see production decline, Rio Tinto laid out plans to double production by 500,000 tons in its Oyu Tolgoi mine in Mongolia by 2027; making it the world’s third largest copper mine. Production expansion in such regions could weigh on prices.
Profit taking in oil ETPs result in the fifth consecutive week of outflows in the energy sector. The US Energy Information Agency (EIA) remains bent on its production forecast of a decline by 860,000bpd in the current year. Temporary supply outages in Canada and Nigeria are helping to absorb the excess supply in the market at present. The ongoing decline in US drilling activity in 15 of the last 16 weeks has led to a decline in US oil production (at 8.8mn bpd, it is the lowest since September 2014). Oil prices soared on the back of US inventory data; nonetheless investors appeared unwilling to hold onto gains as volatility remained elevated.
Key events to watch this week. Inflation data from the US this Tuesday will provide clues of the possibility of a rate hike by the Fed in June. Wednesday sees the release of Q1 GDP figures by Japan and expectations are for expansion this quarter.