Divergent flows in oil and precious metals – Weekly Flows Analysis
Highlights
- Gold and silver ETPs continue to see inflows while profit-taking drives oil ETP outflows
- Investors take profit on sugar and coffee as gains could be transitory
- Investors look to the Fed meeting this week for clues on future rate hikes.
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Silver rides higher on gold’s coat-tails. Silver, often viewed as a leveraged play on gold, rose 6.7% last week and silver ETPs saw US$10.3mn of inflows. The gold-silver ratio still remains elevated at 74, considerably above the low of 30 reached in 2011, indicating that silver remains cheap relative to gold. A cyclical recovery driven by continued policy easing by the world’s major central banks will bode well for silver demand as more than 55% of silver’s consumption is from industrial applications. With silver being a by-product of mining for other metals, the deep capex cuts across the mining space is likely to drive another year of a supply deficit in silver.
Investors continue to take profit on oil. Brent rose over US$52/bbl mid last week. A further US$60.8mn was withdrawn from long oil ETPs, marking the ninth consecutive week of outflows, as investors took profit on their gains. Oil prices could face resistance close to US$55/bbl as drilled but uncompleted wells in the US come back on stream. Price weakness maybe temporary as tight oil wells deplete quickly and the spectre of a global supply deficit in Q3 appears realistic as unplanned outages are elevated and the shadow of capex cuts last year bite into supply.
Coffee and sugar rallies drive profit-taking. Unseasonal rain in Brazil has been cited as one of the reasons that coffee and sugar prices rose 8.9% and 9.2% last week. However, we are very early in the harvest and it is likely any field delays can be made up for. The rally in these agricultural commodities has been closely tied to the appreciation of the Brazilian Real, which strengthened to an 11-month high against the US dollar at the appointment of a new central bank head last week. Coffee outflows of US$9mn were the most since October 2014, while sugar outflows of US$2.3mn were last surpassed in January 2016.
Key events to watch this week. Neither the Bank of England, Bank of Japan or Fed are expected to raise rates this week, but investors will poised for cues for further rate moves based on the latter’s summary of economic projections and press conference.
Video Presentation
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
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