Commodity ETP Weekly Gold Back in Favour on More Central Bank Stimulus Surprise

Central bank policy prompts back-to-back inflows for precious metals.
Silver builds on positive gold momentum with consecutive weekly inflows.
Long oil ETPs see first outflows in two and a half months.
ETFS Copper (COPA) sees largest outflows in 19 weeks.

Lower precious metals prices have prompted bargain hunting from investors, while the recent rally in crude saw some paring of long positions. While the improving economic landscape, particularly in the Eurozone economies, and less focus on political risk to the region have underpinned some lift in investor sentiment, uncertainty over stretched bond and equity valuations lingers. Rising volatility across asset classes is likely to keep investors somewhat cautious and with central banks continuing to surprise markets with more aggressive stimulus, gold in particular looks well-placed to benefit, especially for non-USD investors.

Central bank policy prompts back-to-back inflows for precious metals. While geopolitical risks begin to fade, central bank surprises remain at the fore, with the Swedish central bank surprising the market with a quantitative easing program alongside further rate cuts. Such aggressive stimulus from central banks engaged in currency wars is boosting the appeal of assets that can hedge currency devaluation, like gold. Gold ETPs received the largest inflows of any single commodity this week, totalling nearly US$17mn last week, after the US$95mn inflows the week prior.

Silver builds on positive gold momentum with consecutive weekly inflows. With the gold:silver correlation remaining elevated, investors are looking to silver to provide leveraged exposure to gold. Silver ETPs received a second consecutive weekly inflow, totalling US$6mn, last week. We expect that investors will continue to look at silver as attractive on a relative value basis, with the gold:silver ratio hovering near its 6-year high.

Long oil ETPs see first outflows in 2½ months. While long WTI crude oil ETPs received their 20th consecutive weekly inflows, outflows from Brent crude ETPs totalled US$45m as investors questioned the potential longevity of the crude price rally. The crude rebound defied another surprisingly large build in US inventory levels last week, which saw investors lift inflows into ETFS Daily Short WTI (SOIL) to the highest level since 2011, totalling nearly US$11mn.

ETFS Copper (COPA) sees largest outflows in 19 weeks. Modest gains in the price of copper, as expectations of Chinese government stimulus mount, has seen around US$11mn withdrawn from COPA. We expect that as the lower oil prices that have reduced production costs for industrial metals abate, copper has the potential to record a more robust and sustainable rally.

Key events to watch this week. The focus for investors will remain on central bank policy, with the Bank of Japan holding a policy meeting, alongside monetary policy minutes released from the Federal Reserve and the Bank of England. In light of recent aggressive moves from central banks in terms of stimulus, we expect precious metals to retain their allure, particularly for non-USD based investors.

Video Presentation

Josh Tiwana, 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.

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This communication has been provided by ETF Securities (UK) Limited (”ETFS UK”) which is authorised and regulated by the United Kingdom Financial Conduct Authority.