Commodity ETP Weekly – Commodities end volatile week only slightly down
- Inflows into oil ETPs reach highest level since March 2015 as investors bet on unsustainably low prices.
- Physical gold receives highest inflows since August 2015 as investors hedge against market malaise.
- Industrial metal basket ETPs see highest outflows since July 2015.
- After a violent crash in cyclical commodities and other risk assets, prices started to recover in the second half of the week.
- In contrast to the futures market, ETP investors have been contrarian and have built long positions, particularly in oil.
- Market malaise has maintained strong interest in gold as a haven asset.
Physical gold receives highest inflows since August 2015 as investors hedge against market malaise. Gold has traditionally been the first port of call in times of market stress. While most people cannot understand why cyclical assets fell so hard so fast, many realised that gold performs well in times of panic and went long the yellow metal while waiting for an entry point back into other cyclicals. Gold rose 0.7% last week, 3.4% YTD. Inflows into physical gold ETPs rose to US$85.3mn.
Industrial metal basket ETPs see highest outflows since July 2015. Investor panic saw US$8.9mn redemptions from industrial metal baskets. That came even though most industrial metal prices were only marginally down by mid-week and ended the week higher after Chinese GDP data confirmed strong demand from the largest consumer of metals. Both long and short copper ETPs saw outflows of US$2.7mn and US$1.5mn respectively, highlighting polarised views on the metal. The International Copper Study Group forecasts a supply deficit of 0.5% this year, which will be the 6th consecutive year of a supply shortfall. We don’t think that the market can continue to ignore the increasing tightness in the metal and prices are likely to recover after having fallen 23.6% in the past year.
Key events to watch this week. The market will be keenly tuned into the Fed’s post-policy meeting statement and press conference to hear how the US central bank will react to the recent market volatility. The ECB has already hinted that it will offer more QE, but we expect the Fed to hold steady with its announced policy trajectory of continuing to increase rates to ward off inflationary pressures and keep a buoyant labour market in-check. Currently the market is only pricing in one rate increase this year, while the Fed has indicated it will move four times. We expect US dollar strength, which has been weighting on commodity market performance, to fall away when the market gets in line with Fed thinking. The BoJ and RBNZ will also host their policy meetings this week.
Nitesh Shah, Research Analyst at ETF Securities provides an analysis of last week’s performance, flow and trading activity in commodity exchange traded products and a look at the week ahead.
For more information contact
ETF Securities Research team
ETF Securities (UK) Limited
T +44 (0) 207 448 4336
This communication has been provided by ETF Securities (UK) Limited (”ETFS UK”) which is authorised and regulated by the United Kingdom Financial Conduct Authority.
This is a strictly privileged and confidential communication between ETFS UK and its selected client. This communication contains information addressed only to a specific individual and is not intended for distribution to, or use by, any person other than the named addressee. This communication (i) is provided for informational purposes only, (ii) should not be construed in any manner as any solicitation or offer to buy or sell any securities or any related financial instruments, and (iii) should not be construed in any manner as a public offer of any securities or any related financial instruments. If you are not the named addressee, you should not disseminate, distribute or copy this communication. Please notify the sender immediately if you have mistakenly received this communication. When being made within Italy, this communication is for the exclusive use of the ”qualified investors” and its circulation among the public is prohibited.
This document is not, and under no circumstances is to be construed as, an advertisement or any other step in furtherance of a public offering of shares in the United States or any province or territory thereof. Neither this document nor any copy hereof should be taken, transmitted or distributed (directly or indirectly) into the United States.
This document may contain independent market commentary prepared by ETFS UK based on publicly available information. ETFS UK does not warrant or guarantee the accuracy or correctness of any information contained herein and any opinions related to product or market activity may change. Any third party data providers used to source the information in this communication make no warranties or representation of any kind relating to such data.
Any historical performance included in this document may be based on back testing. Back tested performance is purely hypothetical and is provided in this document solely for informational purposes. Back tested data does not represent actual performance and should not be interpreted as an indication of actual or future performance.
Historical performance is not an indication of or a guide to future performance.
The information contained in this communication is neither an offer for sale nor a solicitation of an offer to buy securities. This communication should not be used as the basis for any investment decision.
ETFS UK is required by the United Kingdom Financial Conduct Authority (”FCA”) to clarify that it is not acting for you in any way in relation to the investment or investment activity to which this communication relates. In particular, ETFS UK will not provide any investment services to you and or advise you on the merits of, or make any recommendation to you in relation to, the terms of any transaction. No representative of ETFS UK is authorised to behave in any way which would lead you to believe otherwise. ETFS UK is not, therefore, responsible for providing you with the protections afforded to its clients and you should seek your own independent legal, investment and tax or other advice as you see fit.
Any products referenced in this document are generally aimed at sophisticated, professional and institutional investors. Any decision to invest should be based on the information contained in the prospectus (and any supplements thereto) of the relevant product issue. The price of any securities may go up or down and an investor may not get back the amount invested. Securities may valued in currencies other than those in which there are priced and will be affected by exchange rate movements. Investments in the securities which provide a short and/or leveraged exposure are only suitable for sophisticated, professional and institutional investors who understand leveraged and compounded daily returns and are willing to magnify potential losses by comparison to investments which do not incorporate these strategies. Over periods of greater than one day, investments with a short and/or leveraged exposure do not necessarily provide investors with a return equivalent to a return from the unleveraged long or unleveraged short investments multiplied by the relevant leverage factor. Investors should refer to the section entitled ”Risk Factors” in the relevant prospectus for further details of these and other risks associated with an investment in any securities referenced in this communication.
If you have any questions please contact ETFS UK at +44 20 7448 4330 or email@example.com for more information.