ETF Securities Weekly Flows Analysis – Price gains in industrial metals prompt strong outflows
- Precious metals, following a period of high profit taking outflows, saw inflows of US$29m last week.
- Industrial metals saw continued outflows of US$118m last week and has now seen outflows of US$272m over the last month.
- Agriculture ETPs attracted US$25m of inflows last week and inflows now total US$248m year-to-date.
Precious metals, following a period of high profit taking outflows, saw inflows of US$29m last week. Silver ETPs were the primary beneficiary with inflows of US$ 25m. The current gold/silver ratio of 75 implies that silver remains more attractively valued relative to gold. Furthermore the previously overbought positions in silver implied by the CFTC data has now corrected back to the long-term average. Recent macro data has been mixed, with delivered results broadly missing expectations, expectations for a rate hike this week remain close to zero although expectations for a December rate hike have risen to 50% as they see recent misses as temporary. We continue to believe the US FED will maintain a “dovish tightening” approach, with only one more rate hikes this year, favouring negative real interest rates to support growth.
The expected supply constriction from Hurricane Irma has prompted outflows from crude ETPs of US$15m and inflows of US$19m in to Energy ETPs which have broader exposure to gasoline. Hurricane Katrina prompted a constriction on gasoline supply and a short-lived bounce of gasoline prices due to refiners production outages. Recent improved sentiment for oil prices has likely been due to the IEA forecasts released last week showing an upward revision to it oil demand expectations for 2017 based on the weaker US dollar. Alleged improved compliance to the OPEC production freeze has also increased price.
Industrial metals saw continued outflows of US$118m last week and has now seen outflows of US$272m over the last month. Industrial metals from the beginning of September were up 35% for the year and 22% year-to-date. Since then they have begun to sell off due to what we believe is profit-taking. Given the long lead times in exploration and development of mines, even though capital expenditure may soon start to increase, we expect supplies to remain tight and the market is unlikely to achieve balance in the short term. However, there are threats to the current rally as strong momentum could give way to a pull-back in prices. Historically periods in which trading volumes in China have risen sharply have been followed by a correction. These pull-backs are usually an opportunity to shake out momentum trades and allow the market to focus on fundamentals rather than a sustained downturn.
Agriculture ETPs attracted US$25m of inflows last week and inflows now total US$248m year-to-date, representing the best inflows of all commodity subsectors. Despite news from North Dakota and Russia that wheat harvest yields have been high investors have been buying wheat and other agricultural commodity ETPs on what we believe is a combination of price weakness and news that the probabilities of a La Niña is rising according to NOAA forecasts.
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