ETF Securities reports that flows into gold did not abate last week, with inflows totalling USD121 million, alongside inflows of USD17 million into silver ETPs.
The firm writes that CFTC futures data highlights sentiment for gold being close to an all-time-high (mean-adjusted) since data was first collected in 1995. Nonetheless, the firm continues to see very little flow into short gold ETPs, with inflows of USD0.8 million.
“Historically strong inflows into long positions have been accompanied with steady rises in short positions,” the firm writes. “While sentiment remains exceptionally high for gold we believe it is justified for several reasons. Firstly, negative yields across Europe mean gold carry costs are now less than holding a Swiss or German government bond. Secondly, populist politics in Europe and the US remain prevalent, with many populist parties leading in polls. Finally, the US monetary policy trajectory remains unclear due recent US Dollar strength and mixed economic data. Our fair value for gold remains at USD1440/oz.”
Turning to oil, crude oil ETPs recorded a seventh consecutive week of inflows of USD193 million, ETF Securities says that following price returns of 12 per cent over the last few weeks, inflows have slowed this week to USD5 million compared to USD113 million the previous week.
“We believe the oil price will remain range bound from USD40 to USD55 per barrel.
Industrial metal inflows continued with flows over the week of USD13.9 million. The majority of inflows accrued to copper ETPs, totalling USD10.4 million. We believe this
is due to state owned enterprises in China having accelerated their fixed asset investment in the first half according to data recently released by the CEIC, rising
23.5 per cent compared to 9.9 per cent in H2 2015. In general, industrial metal prices remain below marginal cost and are in supply deficit which is likely to be exacerbated by continued aggressive capital expenditure cuts by miners.”
In terms of currencies, ETF Securities reports that investors are choosing the EUR against GBP, after a raft of weak economic releases from the UK, inflows into the currency pair EUR/GBP rose by USD6.3 million. Inflows into USD suggests investors have mixed views on the direction of the trajectory of the US Federal Reserve (FED) policy, with inflows into long and short USD pairs both totalling USD2.1 million, since the July FED meeting.
In equities, the firm says there has been continued appetite for gold miners with inflows of USD6.8 million for the week. “Given the recent stellar performance we are cautious on how much the recent gold rally will expand margins versus the longer-term impact on earnings from aggressive capital expenditure cuts. By our measures we see the recent rise in gold miner prices reflecting USD1550/oz. for the gold price, well above our fair value estimates.”