Commodity ETP Weekly : Gold ETPs See Largest Inflows in 7 Weeks on Cyprus Crisis

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The gold price rallied last week as uncertainty around the future of Cyprus, and of the European Union as a whole, spurred demand for safe-havens. Cyprus struck a last-minute bailout deal early today, avoiding a much-feared collapse of its banking system.….

    ETF Securities Research

    The plan foresees the closure of Cyprus’ second biggest bank, Popular Bank of Cyprus, with unsecured depositors with deposits above EUR100,000 potentially lose the remainder of their savings. Unsecured depositors at the Bank of Cyprus also risk losing a portion of their deposits. The deal sets a precedent of haircuts to be sustained by depositors. This risks reduced the already shaky confidence of depositors in other European banks and has reminded investors of continued unresolved large financial system and sovereign debt vulnerabilities. Gold naturally benefits from these concerns.

    Gold ETCs see the biggest inflows in seven weeks, totalling US$139.4mn, on Cyprus bank crisis. After rejecting a 10% levy on deposits proposed by the Eurogroup, the Cypriot government agreed on a 10bn euros bailout that involves the closure of Cyprus’ 2nd biggest bank and over 40% haircuts on deposits over EUR100,000. With banks scheduled to reopen tomorrow after a local holiday, parties are under pressure to define the details of the newly-stuck deal. In the meantime, gold has benefited from the renewed risk-aversion. The March FOMC rate decision was also gold-positive, as the Committee reaffirmed its intention to maintain monetary stimulus until unemployment fall below 6.5% and it is viewed that the US is on a sustainable recovery path.

    Physical platinum ETCs receive US$15.5mn of inflows as South African spare electricity capacity remains perilously low. Energy provider, Eskom, called on household to cut energy consumption by 10% last week, as reserves of electricity in the country are running out. The strike at Exxaro, one of Eskom’s major coal suppliers, is tightening supply even further. With the formal wage revision season officially beginning in June, South Africa is likely to remain in focus and PGM prices are likely to benefit from further supply disruptions in the country.

    Long natural gas ETCs record the largest outflow since June 2011, totalling US$56.2mn, on profit taking. The price of the natural gas Henry Hub benchmark climbed to an 18-month high last week, breaching the US$4 per mmBtu threshold, as colder-than-normal weather in the US led to a drawdown in gas inventories. At the same time, the elevated level of prices has prompted some investors to short the commodity, with ETFS Daily Short Natural Gas (SNGA) receiving US$4.5mn of inflows last week.

    Key events to watch this week: Cyprus will likely remain in focus as details of the newly-agreed bailout will unfold this week. On the data front, there will be a series of US economic releases this week, from Q4 GDP and PCE to housing stats and confidence level. Strong numbers are likely to confirm the improving growth outlook, providing support to more cyclical commodities. German retail sales and unemployment rate will also be released this week and will be monitored closely for signs of the European crisis spreading to the core.


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