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Gold inflows point to fragile investor sentiment

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Martin Arnold, Director – FX & Macro Strategist, ETF Securities has commented on why gold inflows suggest investor sentiment remains fragile and why there is clear concern for the sustainability of the recent trend for higher oil prices.

 “Physical gold ETPs recorded inflows for the tenth consecutive week totalling USD114.1 million,” he writes. “Cyclical assets, particularly equity markets, struggled to make headway, despite recent improvements in global economic activity. However, aggressive stimulus from both the European Central Bank (ECB) and the Reserve Bank of New Zealand (RBNZ) surprised the market and gave fresh impetus to the gold price, as investors believe that real rates will remain under pressure for some time to come.”
 
“Industrially-linked precious metals outperformed gold last week, a potential sign that pessimistic sentiment may be bottoming. Investors appear somewhat more cautious and the third consecutive weekly inflows into silver and platinum totalled USD43.1 million and USD12.5 million, respectively.”
 
Martin adds that profit-taking in oil ETPs sees largest outflows since April 2015. “The International Energy Agency announced last week that a bottom in the oil price has potentially been reached. Nonetheless, investors appear unwilling to risk hard won gains, divesting USD67 million last week from long oil exchange traded products. Both Brent and WTI crude prices reached the highest level since early December 2015, but volatility remains elevated and could see gains reverse course as risk appetite is fragile.
 
“Although the Energy Information Administration reported that US production in December 2015 was the first year-on-year decline in over four years, stockpiles are at record levels (since 1982). Additionally, the weekly increase in stockpiles was the largest on record, indicating that demand still remains deficient to absorb supply.”

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