Price gains drive profit-taking – Weekly Flows Analysis

Highlights

• Silver and oil ETPs experience outflows as investors take profit on recent gains.
• Gold’s strong gains see prior weeks’ outflows largely reversed.
• Investors remain optimistic that platinum’s solid fundamentals will continue to drive the price rally.

Silver prices gain 13.5% in past month driving strongest profit-taking since September 2014. Silver ETPs outflows totalled US$80.7mn last week as the silver price played catch-up with gold over the past month. The gold:silver ratio has fallen from 84 in January to 72 last week. However, the ratio still remains elevated compared to its historic average of less than 60 over the past decade, indicating further catch-up potential. Over 55% of the metal’s demand comes from industrial applications and we believe a cyclical upturn bodes well for silver.

Gold ETP inflows totalled US$52.1mn, partially offsetting the previous week’s outflows. Profit-taking from the previous week appeared premature, after gold has surged to US$1300/oz today (from US$1233/oz a week earlier). Last week’s gains reflected the still dovish rhetoric from the US Federal Reserve and investors’ waning faith in Japan’s economic management. Futures market speculative positioning in gold has risen 2 standard deviations above its 5-year history, up from 2 standard deviations below its 5-year history in December 2015.

Platinum inflows reach the highest level since November 2014. After lacklustre flows in the prior four weeks, investors appear to have become more optimistic on platinum with US$43.2mn of inflows. The metal is likely to go into a supply deficit for the fifth consecutive year as mine investment remains constrained and demand for the metal increases with rising emission standards (the main source of demand for the metal is in pollution abatement equipment).

Third consecutive week of outflows from oil ETPs as Brent gains 8.1% in a week. As US output continues to decline and OPEC output growth nears its limits, oil prices gained. In its “Vision 2030” plan, Saudi Arabia has articulated that it wants its economy to be less reliant on oil. If the country follows through with its plans, the country may not seek to expand production capacity as aggressively as it has done in the past, possibly limiting the amount of oil that is likely to be extracted from the country. Electricity outages, hyperinflation and forced worker holidays could see oil outages pick up in Venezuela, limiting supply in the short term.

A 4.1% dip in wheat prices drove US$5.2mn of bargain-hunting related buying. US winter wheat is progressing well and the current condition of the wheat appears better than this time last year, driving the price down last week. Investors have been attracted by the lower price and last week’s flow were the largest since July 2015.

Key events to watch this week. The US labour market will be the highlight in data releases next week. In 5 out of the last 6 months, there have been more than 200,000 additions to the jobs market and consensus expectations are for a healthy payroll number in April too. Despite the Fed’s dovish rhetoric, robust core inflation and strength in the labour market should alert investors to the prospect of interest rate increases later this year.

Video Presentation

Nitesh Shah, Research Analyst at ETF Securities provides an analysis of last week’s performance, flow and trading activity in commodity exchange traded products and a look at the week ahead.

For more information contact

ETF Securities Research team
ETF Securities (UK) Limited
T +44 (0) 207 448 4336
E info@etfsecurities.com

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