ETF Securities Weekly Flows Analysis – Gold dominates inflows as risk appetite wanes

• Gold’s safe haven status intact as inflows increase albeit moderately for the seventh week in a row.
• Gold miners lose their allure as we see outflows for the first time in 10 weeks.
• Investors turn bearish on German equities ahead of the ECB meeting.

Gold ETP purchases of US$63.2mn mark seventh consecutive week of inflows, while silver ETPs resume inflows of US$1.4mn. After declining 3.05% in August, gold prices found some respite last week following the release of weaker than expected non-farm payrolls data. This further complicates the decision of the Federal Reserve that would need to weigh the impact of the weaker jobs data and ISM manufacturing figures ahead of its next interest rate meeting in September. According to the Fed funds futures, the probability of a rate hike in September has decreased considerably to 26% from 34%. We continue to hold onto our view that the Fed will raise rates this year. However, the latest data releases suggest this is more likely in December than this month. Elsewhere in the sector, platinum ETPs continued to record outflows for the tenth week in a row. The seasonally adjusted US vehicle sales in August came in short of expectations despite considerable discounts provided by dealers, weighing on future demand expectations for palladium.

Gold miner’s equity ETPs see first outflow worth US$9mn in 10 weeks. A marked change in sentiment triggered by the recent decline in gold prices, has led to profit taking. Gold mining stocks are currently worth twice their levels in 2015 are now being perceived as expensive.

Investors turn bearish on European equities as inflows into short German and Italian equity ETPs surge to their highest level in 11 and 15 weeks respectively. Outflows from long German equity ETPs rose in 4 of the last 5 weeks. We believe investors are positioning cautiously ahead of an eventful economic week. The European Central Bank meeting on Thursday remains top of the agenda with a new set of staff projections on inflation and GDP to be released. The market will be poised for any clues about an extension of the Asset Purchase Programme beyond March 2017 or any tweaks to eligibility criteria for government bond purchases in future policy meetings. Revisions to estimates of European GDP growth and German Industrial production are due at the start of the week.

In currencies investors unwind short EUR positions versus long USD ETPs for the second consecutive week by US$4.8mn. After the US dollar strengthened for 2 consecutive weeks, profit taking prompted investors to unwind the short EUR, long USD ETPs positions.

Wheat inflows rise to US$9.6mn marking its highest level in six weeks. Consensus remains for abundant global supply as forecasts for production in 2016/17 are raised. As prices reached a 10-year low on Monday, bargain-hunting investors bought wheat ETPs. They benefited from price-supporting news in the latter half of the week. The European Commission revised downward its forecast for the EU soft wheat crop by nearly 8%. Wheat imports into India are expected to rise as its wheat stock has declined to the lowest level in 10 years, which has also supported prices.

Video Presentation

Aneeka Gupta, 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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