ETF Securities – Gold, Silver and Oil ETPs see Strong Inflows as Situation in Iraq Deteriorates. Last week, the Iraqi conflict remained in focus, with precious metals and oil ETPs seeing strong inflows on fears of a deterioration of the situation in the country. The Islamic State in Iraq and the Levant announced the establishment of a caliphate earlier today, spurring fears extended violence may be inevitable. Meanwhile, a stronger than expected China’s HSBC manufacturing PMI last week indicates that stimulus policies are starting to have an impact on the economy, prompting investors to become more positive on cyclical commodities such as industrial metals. We believe growth bottomed in Q1, with a relatively rebound in store in H2, marking a key economic turning point after three years of slowdown.

Iraqi conflict drives US$119.5mn of inflows into long gold ETPs. The Islamic State in Iraq and the Levant’s (ISIS) attack in northern Iraq has driven up safe haven asset demand, with gold ETPs seeing the second consecutive week of inflows and the largest since March 2013. Both gold and silver prices rose to multi-week highs last week as investors are concerned about the violence spreading further south, potentially eventually leading to an outright civil war. Brent crude ETPs also saw continued inflows on the back of the Iraqi conflict last week.

Long silver ETP inflows rise to the highest level since March

A 4.5% rise in the silver price helped drive US$26.9mn of inflows into silver ETP last week. While the recent rally has likely been driven by the elevated correlation of silver with gold, its wide use in industrial applications puts it in a good position to benefit from a global recovery. With silver demand increasing on the back of a recovering global economy and total supply declining, another supply deficit is expected this year.

Long wheat ETPs see another week of strong inflows on low inventory expectations

The USDA will release its quarterly report on US inventories later today. However, expectations are for ending wheat stocks to be at a 6-year low, prompting investors to accumulate US$10.6mn into long wheat products ahead of the report. Abundant rainfall in the US Midwest could also boost wheat prices as it could delay harvesting or spoil the quality of the wheat. At the same time, ETFS Corn (CORN) saw US$10.2mn of outflows on abundant supply. Inventories are expected to be at 4-year high despite potential damage caused by the recent heavy rainfall.

Industrial metals are back in favour as China’s outlook improves

ETFS Industrial Metals (AIGI) recorded US$34.4mn of inflows last week, the largest in over 3 years, as looser policy in China is likely to favour cyclical commodities. We believe growth bottomed in Q1, with a rebound in store in H2, marking a key economic turning point after three years of slowdown. At the same time, investors withdrew US$30.2mn from ETFS Daily Short Industrial Metals (SIME) as they became more positive on the industrial metal sector. Profit taking and short covering drove US$12.0mn of outflows from both long and short copper ETPs last week as the price jumped 3.7%. Meanwhile, long nickel ETPs recorded US$3.6mn of inflows as the recent price correction is seen as a buying opportunity.

Key events to watch this week

This week investors will likely focus on the European Central Bank rate decision and US non-farm payrolls, both to be released on Thursday, as the US market will be closed for the Independence Day on Friday. While no major initiatives are expected to be announced during the ECB meeting, it will be interesting to see what President Draghi will say at the press conference following the meeting. China’s official PMI release and US ISM manufacturing index will also be watched closely as investors assess the strength of the two economies.

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