Commodity ETP Weekly – Gold Seesaws Between Dovish Fed and Upbeat Jobs Report
- Positive inflows into Gold ETPs resume after dovish comments by Fed Chair Yellen helped gold post its highest (16.1%) quarterly rise in 30 years. However the positive beat in payrolls might see a reversal in trend.
- Declining US crude oil production helps reverse four consecutive weeks of outflows as investors plough into WTI crude oil ETPs.
- Fall in production in world’s largest copper mining producer help revive inflows into copper ETPs.
Dovish comments by Fed chair Yellen help revive positive inflows into gold ETPs. Gold prices caught a fresh bid after a more cautious policy trajectory was inferred from Fed chair Yellen’s comments early in the week boosting inflows into gold ETPs by $96.7mn. Furthermore the Fed Chair remained unsure of the durability of the recent spike in inflation reinforcing a more gradual rate normalization path in the US. However we believe the positive beat in payrolls data provides evidence of economic resilience that could allow the Federal Reserve to raise interest rates more often than projected, thereby avoiding a policy error. Silver ETPs also benefited in Gold’s slipstream recording inflows for the 6th consecutive week worth $9.2mn.
Energy ETPs attract strong inflows, led by WTI crude oil. After four consecutive weeks of outflows, WTI crude oil ETPs received positive inflows worth $19.9mn. This is reflective of declining US crude oil production for the fourth month in a row. We expect this decline to continue since drilling activity has been lacklustre with 30% active oil rigs idled over the past 14 weeks. On the other hand oil production by OPEC has risen by 100,000 barrels per day in March owing to Iran and Iraq. The pre-condition laid out by Saudi Arabia to freeze output subject to Iran and other major producers following suit is casting doubts on the ability of these nations to reach an agreement at the next Doha meeting scheduled on April 17. We expect oil prices to trade a volatile range on the back of acrimonious decision making over the capping of oil production limits by OPEC though declining US oil production may help alleviate sharp price drops.
Copper ETPs attract $10.2mn of inflows amid declining production in Chile. According to data from Chile’s (the world’s largest copper mining producer) National Statistics Institute (INE), about 450,000 tons of copper were produced in February, marking a 7% decline in production for the first two months of the year.
Coffee ETPs garner $5.7mn inflows on the back of dry weather conditions. The probability of a deficit in the coffee crop is becoming increasingly likely due to the ongoing dry conditions in Vietnam, Columbia and parts of Brazil. Interestingly the recent appreciation of the producer’s currencies against the US dollar is providing some relief to the pricing pressure faced in the international market however there is no assurance of how long this could last.
Key events to watch this week. Purchasing Managers’ Indices (PMI) for the US, China and UK this week will offer further signs of a slowdown in the services sector. After setting the stage for a more gradual rate normalization path by Fed chair Yellen, investors will focus on the minutes of the March meeting on Wednesday for clues on the timing of the next rate rise. While Thursday sees the unveiling of the minutes of the ECBs March meeting.
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