Oil Bargain Hunting Continues as Investors Shun Gold on Greek Deal- ETF Securities Commodity ETP Weekly

•    Bargain hunting drives inflows into long WTI oil ETPs to highest in 16 weeks, totaling US$44mn.

•    Investors see value in ’industrial’ precious metals, continuing to shun gold.

•    ETFS Wheat (WEAT) outflows hit six-month high.

•    Long copper and nickel ETPs buck the trend of outflows from industrial metals sector.

Cyclical assets are benefiting in early trading on the newly agreed Greek deal, while defensive assets are currently out of favour. Gold in particular has lost ground as positive sentiment grips investors, but there remain hurdles for the Greek government to implement and adhere to the arrangements. Commodity markets are likely to begin to trade in line with fundamentals, now that the uncertainty surrounding the Eurozone is beginning to fade. However, the relative stability in sentiment will need to be sustained. Chinese economic data (GDP, industrial production and retail sales) will be the main focus for investors this week, after better-than-expected trade data showed that commodity demand remains solid.

Bargain hunting drives inflows into long WTI oil ETPs to highest in 16 weeks, totaling US$44mn. The second consecutive weekly build in crude stockpiles, alongside a rising rig count, indicated that supply is likely to remain abundant, with prices still not low enough to dissuade production in the US. The issue of ‘massive oversupply’ has been reiterated by the International Energy Agency, which noted that there is further potential price falls in the pipeline. Meanwhile, OPEC supply is another concern, and if Iranian nuclear negotiations are successful, the 3-year high production levels could rise further. Indeed, while bargain hunters are looking at current prices as attractive entry points, some near-term softness could result until excess supply can be absorbed by rising demand.

Investors see value in ‘industrial’ precious metals, continuing to shun gold. The sentiment driven sell-off in precious metals has begun to draw investors, with silver and platinum the most favoured. Investors are looking at the depressed price levels of precious metals with significant industrial demand as attractively valued, as the global economic recovery continues, despite negative sentiment currently pervading markets. Long silver ETPs recorded the fourth consecutive week of inflows, with US$18mn received over the period. Meanwhile, platinum posted the third consecutive week of inflows, totaling US$17mn over the period.

ETFS Wheat (WEAT) outflows hit six-month high. Wheat prices have pared recent strong gains, and investors have reduced positions for the second consecutive week. WEAT outflows totaled US$a4.3mn, alongside the recent USDA report showing rising US output this year. Soybean output was also revised higher but the report showed declining corn production.

Long copper and nickel ETPs buck the trend of outflows from industrial metals sector. ETFS Long Copper (COPA) recorded the largest inflow in 10 weeks, totaling US$8.6mn. Meanwhile ETFS Nickel (NICK) has recorded the fourth successive weekly inflows, with deposits of US$15.7mn over the period. Although negative Chinese sentiment coming from sharemarket uncertainty has had an adverse impact on industrial metals prices, we believe that once fundamentals reassert, prices will be broadly supported.

Key events to watch this week. Once concern over Greece’s situation has subsided, focus will move back to economic fundamentals and a raft of Chinese data including GDP, industrial production and retail sales will be key to price direction for commodity markets. The ECB meeting will be a contributor, mainly for the impact that a potentially stronger US Dollar could have on commodities, particularly the precious metals sector.

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ETF Securities Research team
ETF Securities (UK) Limited
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