ETF Securities – Gold price breaks up through 200 DMA, investors start to nibble. The gold price broke through US$1,300oz and then up through its 200 day moving average (dma) last week as dollar weakness following weak US economic data helped to build momentum. Meanwhile, Kazakhstan joined Argentina in devaluing its currency, as emerging market currency contagion hit the country. With fears of a potential crisis still lingering in the background, investors favored allocations to gold and silver ETPs last week as a hedge against potential worst-case scenarios. The Fed’s incoming Chairman reaffirmed that the central bank will maintain a low interest rate policy for an extended period of time also helped buoy gold and silver prices. Despite large January imports from China, investors reduced positions in copper last week, while tactically increasing allocations in agriculture and energy.
Long gold ETPs see US$9.1mn of inflows as price breaks through US$1,300oz and its 200 day moving average on weak Dollar. Soft economic data from the US, coupled with re-affirmed continued stimulus from the Fed, weighed on the US dollar last week, in turn pushing the gold price higher. Investors appear to have been reassured the Fed will maintain stimulus for a “considerable time” as the “labour market is far from complete”, according to new Fed Chairman Yellen’s testimony to the Congress. The last time gold traded around these levels was in November 2013, before the Fed started tapering. Meanwhile, Kazakhstan joined Argentina in devaluing its currency last week, as emerging market currency contagion hit the country, spurring investors’ demand for safe havens. Long silver ETPs also saw net inflows of US$5.7mn, on EM woes and hopes of continued stimulus from the Fed.
ETFS Corn (CORN) sees US$21.2mn of inflows, the largest since May 2008, on continued price weakness. The USDA now expects corn acreage to decrease by 2% in 2014 and forecasts prices to average US$3.65 per bushel in 2014/2015, against US$4.50 as of 2013/2014. Wheat ETPs also received strong inflows last week, totalling US$4.4mn, on lower ending stocks expectations. The USDA unexpectedly revised domestic and global wheat inventories down last week, suggesting wheat market might be tighter than expected.
Henry Hub natural gas spot price surges to over US$5.4 mmBtu driving US$8.2mn into long and leveraged natural gas ETPs. It was reported that US natural gas inventories fell 27% below the five-year average last week, as cold weather continued to engulf the US. According to the National Oceanic and Atmospheric Administration (NOAA), January was the coldest year start since 2001. A blast in a Kentucky natural gas pipeline on Thursday also contributed to the price increase. We anticipate price declines in the coming weeks as the cold weather subsides.
ETFS Copper (COPA) sees another week of outflows, bringing the month total to US$85mn, on concerns EM crisis may derail demand. In addition, the market is expecting strong copper production growth as a result of past capital investments coming into pipeline in 2014. However, should those expectations be disappointed, the copper price could potentially react strongly. Meanwhile, copper demand remains robust with Chinese imports up 53% in January from a year earlier. Although forward purchases ahead of the New Year celebrations might have played a role, China’s appetite for copper and other industrial metals remains strong.
Key events to watch this week
The Fed minutes scheduled to be released this week will likely be in focus, as investors will try to gather the pace of further tapering and/or potential tightening. PMI manufacturing numbers for the Eurozone will also be monitored. After January’s disappointing numbers, the Markit US preliminary PMI will be watched closely.
This communication has been provided by ETF Securities (UK) Limited (”ETFS UK”) which is authorised and regulated by the United Kingdom Financial Conduct Authority.