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Gold ETCs receive nearly USD900m of inflows as investors hedge Europe risks

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ETF Securities long gold ETCs recorded USD246m of new inflows last week, bringing cumulative net inflows to USD845m over the past five weeks.

While Greece finally formed a coalition government, the Eurozone is not any closer to solving the debt crisis engulfing the region. With Spanish 10yr bond yields remaining uncomfortably high at levels around 6.5% and Italian yields also approaching unsustainable levels, European officials are running out of time to find a solution to ease the debt crisis. Investors appear to be building their gold positions to hedge against continued government failure to find solutions to the crisis.

All eyes are now on the Euro- area summit on June 28-29 as investors hope European leaders will move towards fiscal integration, a broader and more aggressive plan to backstop the European banking system, and measures to revive the economy. On the data front, the focus will likely be on the US GDP data release and housing numbers, as signs of a further slowdown in the US economy would increase the chances of QE3 and likely boost the gold price. German retail sales and employment data will also be watched closely to assess the slowdown in Europe’s biggest economy.

Long gold ETCs record 5th consecutive week of inflows, bringing total inflows to US$845m over 5 weeks. Concerns about rapidly deteriorating financial conditions in Europe, continued bickering by European leaders, and rising expectations that a slowing US economy will eventually cause the Fed to move ahead with another round of quantitative easing, appear to be the main factors driving strong investor demand for ETF Securities physically- backed gold ETCs. Gold ETCs continue to be some of the most highly traded ETPs on most European exchanges.

Long silver ETCs see US$15m inflows as silver price drops to early 2011 levels. The silver price dropped below USD27 last week, reaching around the same level it hit was when it bounced in early 2011 and early 2012, lifting net inflows to the highest amount in 14 weeks. In addition, net speculative futures positioning is now back to end 2011 levels. It appears some investors are taking the recent sharp silver price decline as an opportunity to build long positions, 4.5% likely on the view that if gold moves up, silver will may benefit even more strongly.

ETFS Short Copper (SCOP) sees USD13m of outflows on better than expected US building permits data and expectations of further stimulus from the Fed. Home-building permits in the US picked up last week, climbing to the highest annual level since September 2008. As the construction sector is the biggest consumer of copper, this may provide support to copper demand in the medium term. At the same time, the Fed’s pledge to undertake further action to spur growth prompted investors to be less negative towards copper.

 

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