Tepid economic data from the US eased fears that the Fed will imminently cut back on quantitative easing, sending precious metals higher last week. At the same time, mixed data from China kept investors on edge, and weighed on more cyclical commodities such as copper….
ETF Securities Research
With Fed policy so tightly tied to labour market improvements, all eyes will be on the US non-farm payrolls data this week. Last month’s figures surprised to the upside and similarly strong numbers could fuel speculation that the Fed will taper policy stimulus in the near future. However, with long-end bond rates increasing sharply, rising funding costs will likely constrain any near-term tightening from the Fed. Extended gold shorts and continued strong physical demand have the potential to push the gold price sharply higher if payrolls disappoint.
Platinum ETPs receive the largest inflows in over 8 months on expectations that South African wage talks will break down. ETF Securities’ Platinum ETPs saw US$28mn of inflows, as the wage negotiation season in South Africa officially started last week. Despite government efforts to prevent union rivalries from exacerbating the already tense situation, investors remain unconvinced. With over 70% of the world’s supply of platinum mined in South Africa, supply disruptions and political hurdles in the country can have a big impact on prices. Supply side issues in South Africa are likely to remain an important platinum price driver in 2013. At the same time, palladium ETPs registered US$3.4mn of outflows last week on profit taking. Recent strong price performance has been driven by improving demand, coupled with a sharp reversal of strong Russian palladium exports in April.
Physical gold ETPs see more outflows even as disappointing US growth and jobs data pushed the gold price higher. ETP investors continued to cut their gold holdings last week, with gold ETPs seeing outflows of US$157mn, as tactical investors took advantage of the recent gains. The gold price rose above US$1,400/oz. for the first time in two weeks, breaking above key technical resistance before fading in early Monday trade.
Copper ETPs see US$6.1mn of outflows ahead of China’s official PMI survey. Mixed signals from China’s manufacturing sector kept investors on edge last week. While China’s HSBC flash PMI shrank for the first time in 7 months in May, the official numbers released on Saturday showed a pick-up in growth. Concerns over potential strikes at Freeport-McMoRan Grasberg mine in Indonesia are likely to keep copper prices supported in the short-term. At the same time, ETFS Aluminium (ALUM) received US$1.8mn of inflows on strong positive price momentum. While the primary aluminium markets still appear to be oversupplied, prices have risen recently, breaking above US$1,900 per ton, the highest level in over 3 weeks.
Long Coffee ETPs receive inflows of US$4.4mn as prices slump. With Arabica coffee now trading 15% below the level at the start of 2013, some investors are starting to think that prices may have reached a bottom. Currently, the market suffers a supply glut after farmers over-planted in response to the 2010-2011 price spike. While a potent fungus is ravaging coffee bushes in Central America and threatens to reduce global supplies, a bumper harvest in Brazil is likely to keep the market well supplied. However, the Brazilian government could intervene if prices fall further.
Key events to watch this week: All eyes will be on the US non-farm payrolls data at the end of week after last month’s figures surprised to the upside. PMI data releases from the euro area, US and UK will help measure the strength of recovery in global manufacturing. After last month’s cut in interest rates, no further cuts are expected from the ECB this week. The market also expects the Bank of England to maintain the status quo.