ETF Securities Weekly Flows Analysis – Rate hike probability drives gold outflows

• Investors sell gold as hawkish Fed sends the price lower
• Technology themed equity ETPs continue to gain favour
• Buying crude oil on price dips
• Investors diversify within industrial metals
• Largest inflows into short FTSE ETFs since July 2016

Investors sell gold as hawkish Fed sends the price lower. There was US$96.3mn of outflows from long gold ETPs last week, marking the first weekly outflow in five weeks. Following hawkish rhetoric from the Federal Reserve last week, investors changed their view about the timing of the central bank’s next rate move. The Fed Fund futures implied probability of a rate rise this month went from 40% at the beginning of the week to 90% by the end of the week. Better-than-expected ISM manufacturing, consumer confidence, durable goods orders and core PCE inflation data released last week was seen to provide the Fed ammunition. A strong reading in this week’s payroll data may give another reason for the Fed to move higher at its March 15th meeting. While gold held steady in the first half of the week amid the burgeoning political risks around Europe, Macron’s announcement of his policy platform unwound part of the ‘fear trade’ as markets cheered on his centrist appeal. Gold ended the week 1.8% down. We still believe that even if the Fed raises rates this month, elevated inflationary pressure will keep a lid on real interest rates, which will be gold price supportive in the first half of the year.

Technology themed equity ETPs continue to gain favour. Inflows into robotic and cybersecurity themed equity ETPs continued unabated last week with US$7.9mn into robotics and US$16.2mn into cybersecurity ETPs. Inflows into cybersecurity were at their highest since inception.

Buying crude oil on price dips. We saw the first weekly inflows into crude oil ETPs in five weeks as investors bought US$20.9mn of long oil ETPs on a price dip of 1.2%. Despite OPEC’s efforts to cut production, US oil continues to grow and inventories are elevated, weighing on oil price.

Investors diversify within industrial metals. While investors sold US$15.5mn of nickel and US$12.5mn of zinc ETPs, they bought US$15.9mn of diversified industrial metal basket ETPs. Picking the individual winners in industrial metals appears more difficult when prices are so volatile, but the broad theme of tightening supply and rising demand is set to benefit the commodity sub-sector.

Largest inflows into short FTSE ETFs since July 2016. Inflows into short FTSE ETFs of US$5.8mn were the highest since the post-referendum month of July 2016. As the House of Lords rejected certain parts of the Brexit Bill, the market is preparing for continued tussles between the government and the second chamber of parliament.

Video Presentation

Nitesh Shah, Director, Commodity Research 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.

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ETF Securities Research team
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