Gold ETP inflows rise on European sovereign and US growth concerns, says ETFS’ Brooks

Nicholas Brooks, head of Research and Strategy at ETF Securities, says gold exchange traded products have seen inflows rise on investor concerns over the European sovereign debt crisis and US economic growth.

The monetary stimulus remained in focus last week, with Bank of Japan doubling their monthly bond purchases and the European Central Bank pledging to be “ready to act”. US jobs surprised to the downside, strengthening the case for on-going Federal Reserve stimulus to support the economic recovery. With potential for downside risks to the Eurozone economy increasing, more stimulus is also likely to come from the ECB, supporting investor interest in precious metals.

Gold ETCs see $3.2m of inflows on interest from bargain hunting. Gold and silver prices lifted from multi-month lows as evidence indicated that the US economic recovery remains fragile. US jobs surprised to the downside, strengthening the case for on-going Federal Reserve stimulus to support the economic recovery.

This development comes close on the heels of last week’s announcement by the European Central Bank (ECB), which indicated a greater potential for downside risks to the Eurozone economy. Indeed, with the Cyprus bailout fresh in investor minds, coupled with the uncertain Italian political environment and difficulty reaching an agreement on how Portugal will meet its fiscal consolidation targets, more support rather than less is likely to come from the ECB. Expectations of a premature end to US stimulus activities are likely to decline with the US recovery showing shaky tendencies and ‘store of value’ commodities like gold and silver are the obvious beneficiaries.

ETFS Grains (AIGG) records the biggest inflow in over 2 years as the recent price slump is seen as a buying opportunity. Corn prices plummeted by almost 10% last week, after the USDA reported significantly higher US stock levels than anticipated. However, corn stocks remain at a 9-year low and any supply shock is likely to see prices to quickly recoup their losses.

Mixed sentiment drives $5m of inflows into long Brent oil ETCs and $13m of outflows from long WTI crude ETCs. Both Brent and WTI crude oil prices fell sharply last week, reaching multi-month lows on disappointing data from the US. However, planned strikes in Norway starting today will likely support Brent oil. During the last strike in the region in July 2012, Brent prices spiked 10% in a week. Meanwhile, profit taking prompted the 6th consecutive week of outflows from long natural gas ETCs, totalling $7m, as prices persist around the $4 per mmBtu level.

Long copper ETCs receive $4mn of inflows as copper price drops to an eight-month low. Concerns over a slowdown in growth in China and the US, coupled with a 2.6% expected increase in production from Chile in 2013, weighed on the copper price last week. While the macro outlook is not favouring copper at the moment, a 3-week long strike in Chile is likely to set a floor to further drops in price, as exports from the country have already plummeted by 60%. ETFS Industrial Metals (AIGI) also received strong inflows last week, totalling $5.4m.

Key events to watch this week: This week several European economic releases are due. After Draghi’s “ready to act” statement last week, further signs of economic weakness in the Eurozone might be the trigger the ECB is waiting for to intervene in the markets. In light of the weakness of the US jobs data last week, the market will be all ears for any hints regarding timing of stimulus withdrawal from the FOMC minutes from the March meeting.


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