Commodity ETP Weekly : Gold Price Rallies As Cypriot Deposit Scheme Rattles Investors


News over the weekend that Cypriot bank depositors could face levies totalling EUR5.8Bbn as part of the bank bailout agreement rattled investors and led to a sharp rally in defensive assets. Investors’ fear that such policy could be replicated elsewhere in Europe’s troubled banking system are likely to re-acquaint themselves with the ‘insurance’ benefits of owning gold. ….

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      The US economy remained the only bright spot last week, as industrial production for the UK, Euro area and Japan contracted, adding support for the case for further monetary easing. With Parliament having approved Kuroda as the head of the BoJ, more aggressive policy from appears likely in Japan and could follow elsewhere if activity remains sluggish. In contrast, with China’s PBoC and the Reserve Bank of India becoming more «vigilant» on inflation, the divergence between advanced and developing world monetary policy could become more pronounced. Emerging market central banks are taking no chances and actively diversifying FX reserves with gold as shown by the World Gold Council’s latest report. Net inflows into gold ETPs last week indicate that long-term investors are following suit.

      ETFS Gold Bullion Securities (GBS) sees first inflows in six weeks and ETFS Gold (BULL) receives largest inflows since August 2012, totalling US$21.9mn and US$14.6mn, respectively . While ETFS Physical Gold (PHAU) saw US$32.2m of outflows last week, an important milestone seems to have been reached. After weeks of short-term investors leaving gold for more cyclical assets, long-term investors appear to be questioning the sustainability of the cyclical asset rally.

      Physical platinum ETCs received US$11.1mn inflows as South African electricity supply remains unreliable. Energy provider, Eskom, began load shedding for large customers like mining companies last week, which along with ongoing labour issues is contributing to rising costs and is likely to exacerbate the expected deficits for platinum group metals in 2013.

      Largest back-to-back weekly outflows from ETFS Copper (COPA), totalling US$53.9mn on weak European copper demand. Over the past three months copper LME Copper inventories have risen 93%, as new mine supply from Chile has brought more slack into the market at this early stage in the global recovery. Adding to bearish positioning, ETFS Short Copper (SCOP) received its second consecutive weekly inflow, totalling US6.7mn over the period.

      Fourth consecutive week of profit taking in ETFS Natural Gas (NGAS) as price surge continues. US natural gas surged another 5.0% last week, taking gains to 20.5% over the month as a cold winter snap increased demand. Investors took profit with US$13.8mn flowing out of ETFS Daily Leveraged Natural Gas (LNGA) and US$1.5mn into ETFS Daily Short Natural Gas (SNGA).

      Key events to watch this week : Given the strength in US jobs market recently, there will be heightened attention to the FOMC meeting this week. BoE minutes will reveal if the Governor who had voted for larger asset purchases last month has persuaded others of the benefit of more QE to help support the sluggish UK economy. Chinese PMIs will be closely watched after the weaker-than-expected February readings were clouded by the timing of the New Year. Meanwhile, the German IFO, ZEW and Euro area PMI surveys will be key indicators of the health of economic activity in Europe.


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