Despite price gains across a range of commodities last week, commodity investors remain cautious. In fact last week saw the largest ever inflows into ETF Securities short gold ETP (SBUL), with $48mn of net new inflows……
ETF Securities Research
Other of ETF Securities’ range of short commodity ETPs have also seen large inflows, with ETFS Daily Short Copper (SCOP) seeing $37mn of inflows last week alone. While investors remain bearish, there are increasing signs that a commodity price turnaround may lie ahead.
China and US growth data last week indicate the world’s two largest economies are in recovery mode.
Last week the Reserve Bank of Australia, as well as downgrading its inflation forecast (indicating further scope for easing), said that it believes that mining investment is near its peak, pointing to a potential contraction in the excess supply that is currently weighing on some industrial commodities.
While USD strength may keep downward pressure on some commodities in the near-term, if the US and China growth recovery continues and recent indications of tightening supply across a number of key cyclical metals such as copper, platinum and palladium comes through, commodity prices may surprise investors with the strength of their recovery later this year.
Record inflows into ETF Securities short gold ETP.Outflows from long gold ETPs continued last week, with US$125mn of outflows. The outflows from ETPs are in sharp contrast to the surging demand in the physical market. Some ETP investors have become even more aggressive, with US$48mn going into ETFS Daily Short Gold (SBUL) last week, marking the highest weekly inflows on record. Inflows into ETFS Daily Short Silver (SSIL) rose to the highest level since March 2012. Despite the apparent bearishness of investors, demand from the physical market remains strong. In India, the upcoming Akshaya Tritiya festival is prompting further physical buying, while premiums on and sales volumes of physical gold in major global markets remain elevated.
Second largest inflows on record into short copper ETP. ETFS Daily Short Copper (SCOP) received US$37mn of inflows, the second highest weekly inflows since inception. Only topped by the $59mn weekly inflow in January 2013, when disappointing US GDP figures dented high expectations for global growth. On-going concern over a temporary copper surplus and investors heeding to technicals are likely to explain the bearish positions placed last week.
Long corn ETP sees largest inflow since July 2009. ETFS Corn (CORN) received the highest weekly inflows since July 2009, totalling US$13mn. Due to wet weather conditions, only 12% of the total area assigned to corn in the US has been planted according to the USDA, the lowest level at this time of year since 1984. Despite higher acreage of land devoted to corn plantation this year compared to last (when severe droughts led to a bad crop), ETP investors appear to be taking the view that ultimately prices will move higher.
ETFS Longer Dated Energy (ENEF) saw US$18mn of outflows. With US crude market still over-supplied, some investors appear to be turning bearish on energy sector. US crude output has reached its highest level since February 1992. As a result, US crude stocks (excluding reserves) are now 20% above their historic average and at their highest level since records were first kept in 1982.
This apparently has caused investors to cut some of their long broad energy exposures.
Key events to watch this week: US, EU, Chinese and Japanese industrial production and the German ZEW will provide key points on the strength of the recovery in industrial countries. Platinum Week in London commences today, with key forecasts from Johnson Matthey and company reports like to keep a focus on the PGMs.