Commodity ETP Weekly: Short Commodity ETPs Continue to See Strong Inflows on Uncertain Outlook

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Short commodity ETPs continued to see inflows last week, with short gold, short silver and short copper seeing the largest inflows. Total inflows into ETF Securities short commodity ETPs have

    ETF Securities Research

    surged by $114mn over the past three weeks as tactical investors have viewed weaker China growth data as a reason to sell more cyclically oriented commodities and gold has remained under pressure.  Fed Chairman Bernanke’s comments last week were initially taken as a vote for continued quantitative easing, driving the gold price up sharply.  However, in Q&A his testimony indicated that a slowing of bond buying could occur in the next few months if labour market data continues to improve, causing a reversal of price gains. China’s HSBC PMI data came in weaker-than-expected and weighed on most cyclical commodity prices, encouraging some investors to build short positions in more cyclical commodities like copper. In the near-term, high market sensitivity to US and China growth data and perceptions of the Fed’s intentions will likely see most commodities trading in a choppy range. However, if growth data continues to improve, laggard cyclical commodities have the potential to outperform.

    Physical gold ETPs see outflows while leveraged silver and palladium see inflows. ETP investors continued to cut their gold holdings last week, with gold ETPs seeing $244mn of outflows. Tactical investors continue to focus on the likely slowing of the Fed’s quantitative easing program if growth continues to pick-up and the related strength of the US dollar. Strong physical buying by the public and central banks and highly stretched short positions in the futures market make a strong case for a possible gold price rally later this year, however.  In the meantime, perceptions of Fed policy and movements of the US dollar are likely to remain the key to short term price moves and tactical ETP flows.  Interest in the more cyclically-geared white metals remained strong, with ETFS Daily Leveraged Silver recording a second consecutive week of inflows with US$4.5mn of new purchases and the US-listed ETFS Platinum Trust (PPLT) seeing inflows of US$14.4mn.

    Short gold and silver ETPs continue to see inflows. ETFS Daily Short Gold (SBUL) and ETFS Daily Short Silver (SSIL) saw another US$4mn of inflows, with total inflows into short precious metals ETPs rising to US$68mn over the past three weeks.ETFS Daily Short Copper (SCOP) recorded positive flows of US$8mn last week (the third consecutive week of positive inflows into SCOP), bringing total net inflows in ETF Securities short industrial metals ETPs to US$49mn over the past 3 weeks.

    Oil ETPs see inflows as prices trade near bottom of range. Most flows were into ETFS Brent 1Mth (OILB) and ETFS Brent 1Yr (OSB1) as front month Brent oil traded close to the US$100/bbl level. Natural gas saw outflows, with ETFS Natural Gas (NGAS) and ETFS Leveraged Natural Gas (LNGA) seeing around US$5mn of outflows, possibly reflecting profit-taking as the Henry Hub natural gas spot price surged 8.4% last week alone.

    Key events to watch this week: Official Chinese PMI numbers will help confirm if manufacturing growth is indeed slowing as the HSBC PMI indicated last week. After deciding to pause from further increases in asset purchases last week, the Governor of Bank of Japan’s speech will be closely watched. Last week’s Japanese stock market reaction to China’s flash PMI numbers illustrates how fragile sentiment remains. And of course any signs of further labour unrest in South Africa have the potential to move PGM markets.


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