Commodity ETP Weekly – Market polarised ahead of Jackson Hole with investors bullish on USD and gold

• Fifth consecutive week of inflows into long gold ETPs last week, as the market is still not pricing in much chance of a Fed rate hike in September.
• Profit-taking snapped 7th straight weeks of inflows for crude oil ETPs with outflows recording US$82mn last week.
• Investors boost long USD exposures ahead of Jackson hole, with pervasive bearishness for the Euro.
• Industrial metal ETPs received inflows in six of past seven weeks.

Gold ETPs have received inflows for five consecutive weeks, totalling US$644mn over the period. Investors perceived last week’s release of the minutes from the US Federal Reserve as relatively dovish, a positive for the gold price. However, Fed vice chair Fischer dampened sentiment somewhat, after indicating that the Fed is close to its mandated goals. As long as uncertainty remains regarding the path of US monetary policy, gold is likely to remain an investor favourite. Sentiment remains buoyant – despite moderating in recent weeks, CFTC futures data showed that net gold positions are hovering close to an all-time-high. Elsewhere in the sector, investors have cut platinum positions at the fastest rate in 17 months – since march 2015, despite strong gains in recent weeks.

Crude oil ETPs broke a 7-week stretch of inflows as profit-taking drove US$82mn of outflows. Oil prices are back in bull market territory, having rallied by over 20% since the recent lows of near US$40/bbl. Brent has breached the US$50/bbl level after reports of a possible OPEC output agreement and reduced Nigerian production resulting from extremist attacks on its pipelines. We expect to see continued profit taking as prices move closer to the top of the recent US$40-55/bbl range. The Energy Information Administration reported that US commercial crude oil stockpiles experienced a drawdown for the first time in a month last week, helping lift WTI crude.

Industrial metal ETPs received inflows in six of the past seven weeks. Inflows over the week totalled US$5.6mn, led by the strongest inflows since September 2015 into broad basket ETPs, which received US$7.7mn. Data from the World Bureau of Metals Statistics showed that all industrial metals were in deficit in the first half of 2016. As a result, investors appear to be looking for diversified exposures rather than ‘picking winners’ in the sector.

Investors take Long USD exposures ahead of Jackson hole, with inflows the highest in three weeks. With the FOMC seemingly split on the need to raise rates at the September Fed meeting, this week’s gathering of central banker at Jackson hole looms large for investors. Markets appear rather complacent, pricing in just a 20% chance of a hike. Although Fed Chair Yellen will likely highlight the need for policy tightening to be gradual, any hawkish rhetoric is likely to be met with a strong USD bid. Long USD ETPs received US$15.5mn, with the majority of positions against the Euro. Meanwhile, Long Euro ETPs experienced withdrawals of US$6.1mn, the largest in five weeks.

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