Etikett: FOMC

Weaker US dollar boosts precious metals

ETF Securities Weaker US dollar boosts precious metalsWeaker US dollar boosts precious metals

ETF Securities Weekly Flows Analysis – Weaker US dollar boosts precious metals

  • Mixed economic data and minutes from the Federal Reserve’s December meeting weighed on the US dollar, prompting US$69mn of inflows into precious metals.
  • Investors reduced exposure to ETPs tracking long EUR/USD positions by US$95.7mn last week.
  • Energy prices ticked down last week due to a massive increase of US oil inventory and milder temperatures in the US.

The gold price rose 1.4% on the week after the US dollar weakened following a somewhat dovish Fed minutes. Gold ETPs saw US$40.5mn of inflows last week. The minutes of the FOMC December meeting revealed that the Fed is optimistic about growth prospects for the US economy, giving more scope for rising interest rates. However, the FOMC continues to see risks to this outlook, notably regarding fiscal policy and the negative consequences of a stronger dollar. Overall, market participants revised rate hike expectations downward, suggesting the next rate hike would take place in June. The weaker dollar coupled with stronger US and Chinese manufacturing data also boosted platinum and palladium prices, which have gained 5.7% and 10.2% respectively last week.

Investors reduced positions in ETPs tracking long EUR/USD. The US employment report showed wage growth rising 0.4% over December – the strongest since 2009, despite the disappointing 156k job gains on the month. The mixed December US jobs report and Fed minutes halted the US dollar rise that started in November, prompting some investors to pull back their bullish bets. Short USD long EUR ETPs saw US$95.7mn outflows last week.

Crude oil ETPs experienced a US$17.9mn withdrawal after the US Department of Energy reported a massive rise of distillate inventories. The oil price moved slightly upward on the news that Saudi Arabia cut its crude oil production by at least 486k barrels a day since October. However, the oil price pared gains after the US inventory data showed an extra 18mn barrels to gasoline and diesel stockpiles last week. In addition, US natural gas and carbon prices both collapsed by 10.8% and 23%, respectively last week. The price declines were triggered by predictions of milder temperatures in the US, and a drop of EU carbon allowances in the EU Emissions Trading System (ETS).

What to watch this week. Investors will closely watch the industrial production data and employment figures for the Eurozone to gauge the effectiveness of the ECB’s monetary stimulus. Inflation data in China and US retail sales will also be monitored by market participants.

Video Presentation

Morgane Delledonne, Fixed Income Strategist 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 E info@etfsecurities.com

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Investors bullish on the US Dollar, ahead of the FOMC

Investors bullish on the US Dollar, ahead of the FOMC

ETF Securities Weekly Flows Analysis – Investors bullish on the US Dollar, ahead of the FOMC
  • Bullish inflows for US Dollar ETPs ahead of the FOMC meeting, totalling US$4.1mn.
  • Investors lose faith in OPEC’s ability to cut production, prompting second week of outflows.
  • Investors bullish on the US Dollar, ahead of the FOMC
  • Fourth consecutive week of gold ETP outflows, totalling US$153.3mn.
  • Agricultural ETPs receive largest inflows in six weeks, led by broad basket exposures.
Bullish inflows for US Dollar ETPs ahead of the FOMC meeting, totalling US$4.1mn. We expect that the US Dollar could experience a near-term setback in a ‘buy the rumour, sell the fact’ move following the Fed’s second rate rise in the current cycle. While a rate rise is fully priced in, we feel the market is overpricing the chances of the Fed raising its ‘dot plot’ for next year. Oil ETP outflows continue for the second consecutive week, totalling US$55.5mn. Investors appear to be questioning the ability of OPEC to implement its landmark deal to cut production for the first time in eight years. If implemented in full (alongside non-OPEC cooperation), the headline cut of 1.2 million barrels per day would be a positive move to stabilise oil prices by balancing the market. However, the reference figures for the cuts are inflated and additionally, OPEC has long had a problem with quota enforcement. Under prior quota regimes, Saudi Arabia was relied on to be the country to balance the equation – it appears that this may no longer be the case. Nevertheless, with global oil prices remaining at a level which will encourage greater non-OPEC production, the current oil price is at the upper end of our current expected range. Outflows from gold ETPs continued for a fourth consecutive week, totalling US$153.3mn, as the Fed’s December rate hike looms. A greater ‘risk-on’ mindset from investors, accompanied by a stronger US Dollar as the US Federal Reserve (Fed) prepares to hike rates for the first time in twelve months has weighed on the price of gold. Nonetheless, we expect the real rate environment to remain depressed as the Fed gets further behind the curve in 2017 as inflation accelerates, and such an environment will remain supportive of gold. Alongside wage growth, the pro-growth policies that the market is so enthusiastic about are likely to be inflationary. A conservative Fed is likely to remain reluctant to hike too quickly to ward off these pressures, leading to a prolonged period of low/negative real rates. Outside the US, central banks continue to pump ever greater amounts of money into the financial system, in turn enhancing the appeal of gold for non-US investors, as monetary policy debases fiat currency. Agricultural ETPs receive largest inflows in six weeks, led by broad basket exposures. Broad agricultural basket ETPs received US$16.4mn, while long corn ETPs received US$4.8mn, the most in a month. Nonetheless, the fundamental picture hasn’t changed significantly, giving us no reason to be bullish about future price gains. What to watch this week. It’s all about the Fed. We expect the Fed will raise rates at its December meeting (on Wednesday), but the tone of the statement and Chair Yellen’s press conference will be more neutral than previous rhetoric from Fed Governors.

For more information contact

ETF Securities Research team ETF Securities (UK) Limited T +44 (0) 207 448 4336 E info@etfsecurities.com

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US Dollar setback after the FOMC, followed by a rebound

US Dollar setback after the FOMC, followed by a rebound

US Dollar setback after the FOMC, followed by rebound. We expect the Fed will raise rates at its December meeting (on Wednesday), but the tone of the statement and Chair Yellen’s press conference will be more neutral than previous rhetoric from Fed Governors, forcing the US Dollar (USD) lower. As a result of more toned down Fed rhetoric, we expect that the USD could experience a near-term setback on a ‘buy the rumour, sell the fact’ move after its second rate rise in its current tightening cycle. While a rate rise is currently fully priced in, we feel the market is overpricing the chances of the Fed raising its ‘dot plot’ for next year. We believe the Fed will retain the same ‘dot plot’ for rate hikes in 2017 (currently two hikes predicted) and strike a more neutral tone in its statement and at Chair Yellen’s press conference. With the Fed willing to run a ‘high-pressure’ economy next year, we expect the USD to suffer in Q1 as the central bank begins to lose its inflation fighting credibility. Strong economic data, particularly the ongoing buoyancy of the jobs market has driven the US Dollar higher in recent months against all G10 currencies. Investor positioning has surged since mid-October and is at the highest level since August 2015. This could quickly unwind – on a real yield differential basis the USD is currently beginning to look stretched against G10 currencies. With Trump policies likely contributing to inflationary pressure, alongside higher wage growth and upwardly trending core inflation factors like healthcare and housing, we feel the Fed will need to change its projections and be more aggressive in its tightening profile than what is currently envisaged. As the Fed comes to terms with having to be more active with monetary policy in mid-2017, we feel the USD could stage a rebound in the second half of the year.

Martin Arnold, Global FX & Commodity Strategist at ETF Securities

Martin Arnold joined ETF Securities as a research analyst in 2009 and was promoted to Global FX & Commodity Strategist in 2014. Martin has a wealth of experience in strategy and economics with his most recent role formulating an FX strategy at an independent research consultancy. Martin has a strong background in macroeconomics and financial analysis – gained both at the Reserve Bank of Australia and in the private commercial banking sector – and experience covering a range of asset classes including equities and bonds. Martin holds a Bachelor of Economics from the University of New South Wales (Australia), a Master of Commerce from the University of Wollongong (Australia) and attained a Graduate Diploma of Applied Finance and Investment from the Securities Institute of Australia.

Trump Uncertainty Could Be “Huge” for Gold

Trump Uncertainty Could Be “Huge” for Gold

Market Review – Trump Uncertainty Could Be “Huge” for Gold

Gold Market Commentary November 2016

Market Review

Our positive view on the long-term prospects for gold remain unchanged. The U.S. elections are over, and markets will likely take time to reflect the full impact of a Trump victory. Gold immediately rose above $1,300 per ounce yesterday on news of Trump’s win, but settled back to end the day at $1,278. Price volatility in the short run is not surprising.

Fed Comments on December Rate Hike Break Gold’s Upward Move

The strong price movements that followed the U.K. Brexit vote on June 23 had set gold on a new positive trend, breaking the downtrend that had been established during the 2013-2015 gold bear market. On October 4, however, gold fell $44 per ounce, a 3.4% drop for the day, and gold closed below $1,300 per ounce for the first time since June 24. As it had for most of the year, the downward pressure followed comments by some Federal Reserve (the “Fed”) members that were interpreted by the market as increasing the likelihood of a Fed interest rate hike occurring in December. In addition, and importantly, Chinese markets were closed the first week of October for the Golden Week holidays. With gold’s biggest buyer out on vacation, gold was left very vulnerable, which we believe emboldened short sellers. Gold closed as low as $1,251 per ounce on October 14 but bounced back modestly to end the month at $1,277.30 per ounce, down $38.45 or 2.9% for the month.

A Rate Increase Has Been Priced into Gold and U.S. Dollar

At the beginning of November, markets attached about a 78% probability to a December Fed rate hike, as implied by the federal funds futures markets. This probability stood at 59% at the end of September, despite U.S. macro data releases that were very mixed, as has been the case throughout the post-crisis recovery. There were certainly some positive economic surprises in October: PMI (Purchasing Managers’ Index) readings from both the ISM (Institute of Supply Management) and Markit Group in the manufacturing, non-manufacturing, and services sectors showed some expansion and an increase in August factory orders for U.S. goods.1

In contrast, however, weak data were reported for U.S. employment, the preliminary University of Michigan Consumer Sentiment Index,2 the Empire State Manufacturing Index,3 housing starts, and the U.S. Consumer Confidence Index.4 While 3Q gross domestic product (GDP) headline growth was above consensus, personal consumption missed expectations by a wide margin. By mid-October, regional Fed growth forecasts were being downgraded. The Federal Reserve Bank of New York’s 4Q 2016 GDP Nowcasting Report, for example, shows 1.4% growth as of October 20 versus 2% growth in late August. In this environment, a rate hike does not appear to us as the obvious next move by the Fed, but the market is pricing it in, and both gold and the U.S. dollar reflected this in October. While gold was down 3%, the U.S. Dollar Index (DXY)5 was up 3% during the month.

Demand for Gold Withstood Recent Selloff

Despite the drop in the gold price in October, demand for gold bullion-backed exchange traded products (ETPs) held firm. Inflows have no doubt slowed down compared to earlier in the year (0.4% increase in holdings in October compared to 12% and 6% increases in February and June respectively), but demand continued during the recent selloff. We believe this is positive since investments in gold bullion ETPs typically represent longer-term, strategic investment demand. In contrast, the latest Commitment of Traders report shows a significant decline in COMEX6 net long positions, which reached record levels this year. We think COMEX positioning reflects more speculative and shorter-term demand for gold, and the recent decline suggests perhaps some of those weaker players liquidated positions during the October selloff.

Gold stocks underperformed the metal, as expected when bullion prices fall. The NYSE Arca Gold Miners Index (GDMNTR)7 fell 7.3%, and the MVIS Global Junior Gold Miners Index (MVGDXJTR)8 dropped 8.8% during the month. This decline trimmed gains for the year to 79% for GDMNTR and 110% for MVGDXJTR as of October 31, while gold bullion gained 20.3% during the same year-to-date period.
Election Uncertainty and Asian Demand Should Support Gold

The gold price is on a slightly different track now compared to our previous expectations. A correction was not surprising, given gold’s outstanding performance this year. But we thought that the $1,300 level might hold and gold would continue on the new trend established this year, potentially exiting 2016 around the $1,400 level. Although our shorter-term outlook has been curbed by the recent price action and we now think that gold may not reach $1,400 in 2016, we believe strong seasonal demand out of Asia and continued uncertainty following the results of the U.S. presidential election could lend support to gold in the near term. In the first week of November, gold managed to rally back above $1,300. The Fed decided to keep rates unchanged at its November 2 Federal Open Market Committee (FOMC) meeting, but this was widely expected, so we estimate the positive move was most likely driven by market concern over the outcome of the U.S. elections. Market views quickly shifted, once again, and on November 8, Election Day in the U.S., gold closed at $1,277. Following Trump’s stunning victory, gold rose back above the $1,300 price level on the morning of November 9.

Trump Presidency May Increase Financial Risk

With the contentious presidential election finally over, we can now assess the impact that the Trump victory will have on the country and more importantly, how it potentially increases risk to the financial system.

Although Trump emerged successful in the election, there remains tremendous uncertainty surrounding his morals, temperament, and judgment. Internationally, high levels of trepidation around his foreign policies are not likely to subside quickly, and his anti-trade stance could damage economic growth. In our opinion, Trump’s aggressive immigration policy was no doubt one of the key drivers of his appeal but could lead to potential civil unrest, extreme costs, and logistical challenges once implemented. If Trump is able to implement some of what he promoted during the campaign trail, infrastructure spending could push the national debt to unsustainable levels and deficit spending should continue. While the risks of a Trump presidency are substantial, the potential for pro-growth tax and regulatory reforms may partially mitigate risks.

Independent of policy specifics, there exists a growing chance our newly elected president will likely preside over the next recession. After eight years of expansion, there are signs that the economy has entered the ”late cycle” phase. The Fed’s efforts to tighten policy could create a further drag on growth. A recession layered onto the existing risks we see in a Trump presidency, in our view, makes a systemic financial crisis more likely.

Higher Rates Not Always Negative for Gold

A Fed rate hike in December appears almost fully priced-in already. The common argument is that higher rates are negative for gold given that it is a non-yielding asset. Yet, following the first rate hike of the current tightening cycle in December 2015, gold has advanced more than 20% so far this year. In fact, Scotiabank analyzed the previous six tightening cycles since 1982 (when a suitable gold index became available) and it found that gold prices advanced in the year following the first rate increase in half of the cycles, whereas gold declined in the other half.

Scotiabank points out that the only other point at which the Fed raised rates in a low-inflation environment was in 1986 when rates were increased to help defend a sharply depreciating U.S. dollar. It was one of the rate-rising periods when gold performed well. This is shaping up to be a similar period demonstrated by gold’s already strong performance after the first rate increase in December 2015. The economic and financial backdrop of the current rate cycle is unlike any other in recent history, and we expect gold to continue to perform well. In our opinion, the stress that rising rates have the potential to place on the global economy and financial system are very bullish for gold.

Long-Term Outlook Remains Positive for Gold Bull Market

Our view on the long-term gold price is unchanged. We see the recent weakness as a consolidation phase within what we believe is the early stages of the next bull market for gold. We continue to believe dislocations created by the unconventional policies being implemented by central banks around the world are likely to increase global financial risks. We believe that investors will continue to be driven to gold as a safe haven given the further loss of confidence in central banks on a global scale and perhaps domestically, and the uncertainty following Trump’s presidential victory.9

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by Joe Foster, Portfolio Manager and Strategist

With more than 30 years of gold industry experience, Foster began his gold career as a boots on the ground geologist, evaluating mining exploration and development projects. Foster is Portfolio Manager and Strategist for the Gold and Precious Metals strategy.

1In the U.S., the federal funds rate is “the interest rate” at which depository institutions actively trade balances held at the Federal Reserve, called federal funds, with each other, usually overnight, on an uncollateralized basis. Institutions with surplus balances in their accounts lend those balances to institutions in need of larger balances. 2The correlation coefficient is a measure that determines the degree to which two variables’ movements are associated and will vary from -1.0 to 1.0. -1.0 indicates perfect negative correlation, and 1.0 indicates perfect positive correlation. 3U.S. Dollar Index (DXY) indicates the general international value of the U.S. dollar. The DXY does this by averaging the exchange rates between the U.S. dollar and six major world currencies: Euro, Japanese yen, Pound sterling, Canadian dollar, Swedish kroner, and Swiss franc. 4The ISM Manufacturing Index is an index based on surveys of more than 300 manufacturing firms by the Institute of Supply Management. The ISM Manufacturing Index monitors employment, production inventories, new orders and supplier deliveries. 5A survey of consumer confidence conducted by the University of Michigan. The Michigan Consumer Sentiment Index (MCSI) uses telephone surveys to gather information on consumer expectations regarding the overall economy. 6The U.S. consumer confidence index (CCI) is an indicator designed to measure consumer confidence, which is defined as the degree of optimism on the state of the economy that consumers are expressing through their activities of savings and spending. 7NYSE Arca Gold Miners Index (GDMNTR) is a modified market capitalization-weighted index comprised of publicly traded companies involved primarily in the mining for gold. 8MVIS Global Junior Gold Miners Index (MVGDXJTR) is a rules-based, modified market capitalization-weighted, float-adjusted index comprised of a global universe of publicly traded small-and medium-capitalization companies that generate at least 50% of their revenues from gold and/or silver mining, hold real property that has the potential to produce at least 50% of the company’s revenue from gold or silver mining when developed, or primarily invest in gold or silver.

Please note that the information herein represents the opinion of the author and these opinions may change at any time and from time to time.

Important Information For Foreign Investors

This document does not constitute an offering or invitation to invest or acquire financial instruments. The use of this material is for general information purposes.

Please note that Van Eck Securities Corporation offers actively managed and passively managed investment products that invest in the asset class(es) included in this material. Gold investments can be significantly affected by international economic, monetary and political developments. Gold equities may decline in value due to developments specific to the gold industry, and are subject to interest rate risk and market risk. Investments in foreign securities involve risks related to adverse political and economic developments unique to a country or a region, currency fluctuations or controls, and the possibility of arbitrary action by foreign governments, including the takeover of property without adequate compensation or imposition of prohibitive taxation.

Please note that Joe Foster is the Portfolio Manager of an actively managed gold strategy.

Any indices listed are unmanaged indices and include the reinvestment of all dividends, but do not reflect the payment of transaction costs, advisory fees or expenses that are associated with an investment in the Fund. An index’s performance is not illustrative of the Fund’s performance. Indices are not securities in which investments can be made.

1U.S. Dollar Index (DXY) indicates the general international value of the U.S. dollar. The DXY does this by averaging the exchange rates between the U.S. dollar and six major world currencies: Euro, Japanese yen, Pound sterling, Canadian dollar, Swedish kroner, and Swiss franc. 2NYSE Arca Gold Miners Index (GDMNTR) is a modified market capitalization-weighted index comprised of publicly traded companies involved primarily in the mining for gold. 3MVIS Global Junior Gold Miners Index (MVGDXJTR) is a rules-based, modified market capitalization-weighted, float-adjusted index comprised of a global universe of publicly traded small- and medium-capitalization companies that generate at least 50% of their revenues from gold and/or silver mining, hold real property that has the potential to produce at least 50% of the company’s revenue from gold or silver mining when developed, or primarily invest in gold or silver. 4Fannie Mae (Federal National Mortgage Association); Freddie Mac (Federal Home Loan Mortgage Corporation)

Please note that the information herein represents the opinion of the author and these opinions may change at any time and from time to time. Not intended to be a forecast of future events, a guarantee of future results or investment advice. Historical performance is not indicative of future results; current data may differ from data quoted. Current market conditions may not continue. Non-VanEck proprietary information contained herein has been obtained from sources believed to be reliable, but not guaranteed. No part of this material may be reproduced in any form, or referred to in any other publication, without express written permission of VanEck. ©2016 VanEck.

Fed relaxed on inflation not on the economy

Fed relaxed on inflation not on the economy

Fed relaxed on inflation not on the economy. The latest comments by Yellen suggest that the Fed is ready to keep interest rates low for longer to get productivity growth going, even at the cost of higher inflation. We believe real interest rates will become more negative as inflation expectations rise. Such an environment is likely to increase investors’ hunt for yield.Last Friday, Janet Yellen said the Fed may need to run a “high-pressure economy” – tighter labour market, higher consumption and investment – to reverse damage from the financial crisis, even at the cost of higher inflation. However, the economy is not yet overheating. The US economy has been adding 193k jobs per month on average so far this year without the unemployment rate edging lower and core PCE inflation rocketing higher. In our view, Yellen is not yet satisfied with the current level of employment and sees more room before it reaches its theoretical “maximum” level. Hence, she could slow the trajectory of interest rates as long as unemployment rate stagnates and inflation remains close to 2% (+/- 1pp).

Furthermore, the FOMC (Federal Open Market Committee) seems increasingly convinced of the existence of a “new normal” paradigm which requires lower benchmark rates than in the past. Fed’s Vice President Stanley Fischer stated that “gradual increases in the federal funds rate will likely be sufficient to get monetary policy to a neutral stance over the next few years.” Historically, the tightening cycles of the Fed resulted in an average of 380bps increase of the effective Fed Funds rate. Now, considering the shadow rate – a metric used to equate quantitative easing (QE) to an equivalent federal funds rate that is not bounded at 0% – the Fed already tightened its base rate by 337 bps since the end of the QE programme in November 2014, well before inflation started to pick up, and implies continued caution in raising rates.

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There will be two labour reports before the December meeting, and we believe that the FOMC will search for an acceleration of labour and inflation trends. We expect high volatility in the following months but the current state of the economy does not support a massive sell-off in fixed income as the FED tightens. Additionally, rising inflation breakeven rates will make real interest rates even more negative, and ultimately increase investors’ search for yield.

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Morgane Delledonne, Fixed Income Strategist at ETF Securities

Morgane Delledonne joined ETF Securities as Fixed Income Strategist in 2016. Morgane has an extensive experience in Monetary policy, Fixed Income Markets and Macroeconomics gained at the French Treasury’s Office in Washington DC and most recently in her role as Macroeconomist and Strategist at Pictet&Cie in Geneva. Morgane holds a Bachelor of Applied Mathematics from the University of Nice Sophia Antipolis (France), a Master of Economics and Finance Engineering and a Master of Economic Diagnosis from the University of Paris Dauphine (France).