ETF Securities Weekly Flows Analysis – Gold inflows strengthen as geopolitical risks take centre stage

Highlights

• Geopolitical risk drives US$33.2mn into long gold ETPs and US$13.
• 6mn into long silver ETPs.Inflows into copper ETPs rebound with US$29.1mn inflows last week.
• US dollar ETP positions widened for the second week in a row to US$10.2mn, as investors positioned against the Euro.

Gold ETPs attracted the largest inflows in 23 weeks as risk aversion took centre stage amidst military activity in Syria and ongoing trade tensions. Following days of sabre rattling by Mr Trump, the US, UK and France launched a missile attack on Friday in an attempt to destroy the Assad regime’s chemical weapon capabilities in Syria. In response, Russian president Vladimir Putin condemned the attack and warned that such action would inevitably lead to chaos. As the first port of call in times of political uncertainty, we expect gold to remain in demand for as long as the conflict between the US and Russia continues on the back of the Syrian crisis. In fact, for most of this year gold has been sporting its safe-haven hat.

US government shutdowns, sabre-rattling between US/Japan and North Korea, the ratcheting up of a trade war between the world’s largest economies, interactions between Russia and NATO sponsors deteriorating back to cold-war tendencies, the potential return of sanctions against Iran and the proxy war between Saudi Arabia and Iran are few of the sources of investor anxiety. Added to that, the weaker greenback has lent buoyancy to gold prices that ended last week higher by 1%. Silver prices have also been benefiting in gold’s slipstream. Silver ETPs received US$13.6mn, marking the fifth consecutive week of inflows. We continue to have a positive view on silver’s fundamentals owing to a strong industrial cycle and constrained mine supply and expect silver to play catch-up in 2018.

Inflows into copper ETPs increase by US$29.1mn, reversing the prior two weeks’ trend of outflows. Owing to their cyclical nature, industrial metal prices have come under considerable pressure as the threat of trade wars continues. Last week Peru, the world’s second largest producer of copper after Chile, confirmed its intention to produce 3mn tons (36% up over the prior year) of copper per year by 2022. While supply has been increasing, the global copper market was in a seasonally adjusted supply deficit of 155,000 tons last year as confirmed by the International Copper Study Group (ICSG). While the deficit looks set to decrease marginally on the back of higher supply, demand remains well supported. According to data from the customs authorities, China concentrate imports were up 8% over the prior year in Q1 2018.

US dollar ETPs widened for the second week in a row to US$10.2mn, primarily as investors positioned against the Euro. The rollover of the Purchasing Managers Index (PMIs) in Europe from record highs in January coupled with weaker macro-economic data in Europe last week has dampened sentiment towards the European economic recovery. We believe, the current downturn is only reflective of a midcycle pause and expect Europe’s strong economic growth trajectory to continue.

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