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Gold and Silver Ignore Tapering Talk

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Gold and silver rose last week despite the spike in US bond yields and a  stronger US dollar.  The silver price rose 1.1% last week, bringing gains  over the past 8 weeks to 27%.  The gold price also rose, bringing the  total increase to 14% since its 5 July low…


ETF Securities Research


While the spike in US bond  yields is pressuring many financial assets, precious metals took the latest  release of the Fed’s FOMC minutes in stride, ignoring the Fed’s statement  that it is “broadly comfortable” with moving ahead with reductions in  bond buying  in the near future. The fact that both gold and silver prices  ended the week higher indicates that the start of Fed tapering may have  already been largely been priced in to precious metals prices.    

Profit taking drives  US$77mn of  outflows from precious metal  ETCs.  The strong rally in precious metals prices appears to have  prompted some investors to take profits, with $77mn flowing out of  precious metals ETPs last week.  Despite the ETP selling, physical buyers  – particularly in Asia – are taking up the slack. In the first half of 2013,  UK exports of gold to Switzerland soared to  797  tonnes, equivalent to  30% of global mine production, with much of  the supply  likely  coming  from  ETFs liquidations. Hong Kong imports of gold from Switzerland  surged to  284  tonnes  over the same period, evidencing a shift in gold  demand from  the West  to  the East.  This demand surge, combined with  subdued  recycling and diminished mining productivity  should  provide a  solid foundation for continued price appreciation  in our view.  The more  industrially-oriented precious metals (palladium, platinum and silver) will  likely continue to benefit from improving global growth.     

ETFS Longer Dated Energy  (ENEF) receives US$9mn as investors  favour diversified  energy  exposure.  A better-than-expected HSBC  flash PMI for China last week  helped boost energy prices last week as  investors anticipate strong China demand. In addition, Libya’s output fell  to the lowest level since the civil war in 2011, crimping global supplies. If  the situation in Egypt escalates, we are likely to see oil prices rally higher.
Following the recent rise in Brent price, ETFS Brent (OILB) saw US$11mn  of profit taking last week.  

Copper ETCs see US$6mn of outflows on concerns the US Fed will  start tapering in September. Nickel ETCs also saw US$5mn of outflows  on rising stockpiles. The International Nickel Study Group foresees a 90  thousand tonne surplus on the market in 2013 on sluggish demand,  equivalent to 5% of global consumption  With the surplus for the first
seven months of the year totalling around 75,000 tonnes, the year-end  total could well exceed the current estimates.

Coffee ETCs see US$4mn  of inflows as recent slump in prices   attract bargain hunters. Arabica coffee price hit a 4-year low last week  on the back of a record crop in Brazil, the world biggest Arabica producer,  and a weak Brazilian Real. At the same time, ETFS Corn (CORN) received  US$2.3mn on drier-than-expected weather in the Midwest in the first part  of last week. However, prices tumbled on Friday as rainfall improved the  crop outlook in the area.

Key events to watch this week.  This week investors will focus on  a  number of US releases, including house prices, consumer confidence and  durable goods. The second reading of US Q2 GDP will also be monitored  as any upward revision could trigger an early exit of the Fed. India Q2  GDP will conclude the week.

 

Source: ETFWorld

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