– Investors take profit on OPEC-led oil price rally…
– Platinum sees inflows as miners strike
– Precious metals continue to see inflows as investors hedge against financial market jitters
Investors take profit on crude oil after a sharp OPEC-led rally. OPEC members reached an agreement on Wednesday to limit oil output. If implemented, it will be the first time in two years that the cartel will have a quota. Oil markets cheered the news with over a 6% price rally. However, many investors used the opportunity to take profit with a US$23.6 of outflows from long oil ETPs for the week. Capping OPEC production at 33 million barrels alone will do little to achieve market balance. We continue to believe that the bulk of the heavy lifting to achieve global market balance will be made by non-OPEC countries cutting supply.
Financial market jitters support demand for defensive assets once again. Concerns around the health and future of Deutsche Bank sparked a broader sell-off in cyclical financial assets in the latter half of the week. That continued to support the demand for defensive assets such as gold and silver via ETPs. Long gold ETPs saw US$111.3mn of inflows, marking the ninth week of inflows in the past ten weeks. Long silver ETPs saw US$30.1mn of inflows, the highest in since the post-Brexit rally in July.
Platinum ETPs receive second consecutive week of inflows. Investors fear that supply of platinum could be compromised by prolonged wage negotiations that could turn ugly as they did in 2014. Last week members of the National Union of Mineworkers (NUM) went on strike in South Africa. About 500 of the 900 workers at Impala Platinum’s mines belong to the union. However, the company stated that 85% of staff reported for duty and operations were normal. In 2014 a standoff between unions and platinum mines lasting five months led to an estimated 1.2 million ounces of lost production (about a third of global output). While we are far from such level of acrimony this time, wage negotiations have been on-going since the beginning of the summer and still have not been resolved. We saw US$5.9mn of inflows into platinum ETPs last week.
Euro favoured over Sterling again. We saw US$10.1mn of inflows into long EUR, short GBP ETPs last week, reversing outflows of a similar magnitude from the previous week.
Short NOK bets are off. Following a 0.8% depreciation in NOK, investors sold their short NOK trade placed in the prior week, seeing outflows of US6.1mn. The rebound in oil prices this week could lend support to the Norwegian currency.
Key events to watch this week. A raft of PMI numbers from Europe to China to US will provide a gauge for the strength of the recovery. Investors will be focused on the US payrolls data. Consensus is for 173K additions. Anything less could drive the US Dollar lower and gold higher as bets for a December rate hike (which are finely balanced at the moment according to the futures market), could edge lower.