ETF Securities Weekly Flows Analysis – Tensions with North Korea to support demand for gold
- Gold ETPs recorded the largest weekly inflows since March as tensions with North Korea escalate.
- Short Oil ETPs recorded inflows as oil prices trade around US$50/bbl on average.
- Inflows into copper ETPs as manufacturing activity in China grew more than expected in August.
Investors rushed into gold ETPs as North Korea is threatening further military tests near the US seas. Last week saw US$122.5mn inflows into gold ETPs as tensions with North Korea intensify. Whilst the country has been demonstrating its military force since at least the 80’s, it has stepping up its provocations since the summer 2016 when Kim Jong-un claims that he can launch a missile capable of striking the US. Verbal provocations recently turned into military action with a North Korean missile overflying Japan on Tuesday morning. Allies have responded by another demonstration of force on Thursday as US bombers joined South Korea in a live-fire bombing exercise over South Korea. Russia and China, on the other hand, are pushing for diplomatic talks. Gold price rose by 2.6% on Tuesday, closing above US$1,318/oz., the highest level since September 2016, before ending the week at US$1,320/oz. Platinum and silver, on the other hand, recorded outflows of US$12.4mn and US$34.5mn respectively, likely on profit-taking as prices touched the highest levels since Q1 2017.
Inflows into short oil ETPs sent mix signals despite robust domestic demand for oil in the US. Hurricane Harvey which hit the US Gulf Coast damaged a third of US oil refineries, sending the price of heating oil and gasoline to the highest level since the summer 2015. The hurricane, downgraded to tropical depression, is the first category 3 to make landfall in the US since 2005. Oil prices, on the other hand, have barely moved from their current momentum. WTI fell 1.2% over the past week while Brent remains flat. Natural gas was up 6.2% over the week as the active contract rolled from September to October on Wednesday with a curve in contango. After six weeks of outflows, oil ETPs recorded US$5.8mn inflows last week, mostly into short oil ETPs, reflecting investors’ views that oil prices will remain range-bound. However, US domestic demand for oil remains strong as inventories declined more than expected last week despite production continuing to rise.
Copper ETPs recorded inflows on growing Chinese manufacturing activities in August. China manufacturing PMI surprised the market to the upside while service and non-manufacturing PMIs grew at their lowest pace in four months as construction activity slowed down. Interestingly, the Caixin manufacturing PMI, released last Friday, also confirmed a pickup in in industrial activities at 51.6 against 51 expected and 51.1 in July. While the Chinese National Bureau of Statistics data focus on large to mid-sized companies, the Caixin manufacturing PMI tracks smaller and private businesses and therefore provides an independent reading from official numbers. The price of industrial metals rose by 3.0% on average last week and 10.8% over the past month. We continue to expect Chinese data to beat expectations and support demand for metals.
Video Presentation
Edith Southammakosane, 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.
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