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ETF Securities writes precious metals receive boost from no change in the dot-plot

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Morgane Delledonne, Associate Director – Fixed Income Strategist at ETF Securities writes that there has been no change in the Fed’s dot-plot which has boosted precious metals.

She writes that there were USD84.5 million of inflows into gold ETPs last week reversed the prior two weeks of outflows (USD71 million). As expected, the Fed raised interest rates by 25bps. “However, the Fed left its so called dot-plot (its own estimate of where interest rates will end up) unchanged with three rate hikes this year, followed by another three in 2018. Its forecasts for growth and inflation were broadly unchanged.

“The more dovish-than-expected outlook lead the US dollar and yields on 10-yr US Treasuries to fall significantly, supporting gold price. Gold prices rose 1.7 per cent following the Fed’s announcement. We expect the gold price to increase by 5 to 6 per cent by mid-year, but decline toward current levels by year end.”

Meanwhile last week saw inflows into crude oil intensify as US stocks drop. “We saw a second consecutive week of inflows into crude oil ETPs of USD60.5 million (after USD10 million the week before). Oil prices are recovering after US crude oil inventory were slightly reduced last week, for the first time since early January. Meanwhile, Saudi Arabia has announced willingness to extend production curbs in the second half of the year if global stocks remain above the five-year average.”

Delledonne reports that investors took profits on long EUR ETPs. “We saw a reduction on long positions on EUR ETPs (USD26 million) and an increase in short EUR ETPs (USD23 million) after the euro appreciated 1.6 per cent since the latest ECB meeting on March 9th on the back of expectations that the ECB will adopt a less accommodative policy stance. Meanwhile, the defeat of the far-right Eurosceptic candidate Geert Wilders in the Dutch elections also removed downward pressures on the Euro. We expect the Euro to appreciate by roughly 3 per cent toward mid-year.”

Turning to China, ETF Securities writes that the positive economic surprise from China and a weaker US dollar has supported metal prices. “We saw USD51 million of inflows into industrial metals ETPs including USD29 million inflows into copper ETPs after positive economic surprises from China. Both Chinese industrial production and fixed asset investments for February beat expectations, rising 6.3 per cent year on year and 8.9 per cent year on year from 6.0 per cent year on year and 8.3 per cent year on year in January respectively.”

Looking ahead to this week, ETF Securities believes that March Flash PMIs for the Eurozone, US and Japan will provide investors a gauge for economic activity in the final month of the first quarter. Speeches by Fed Chair, Yellen and dissenting committee voter, Kashkari will be followed for hints of further dovishness.

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