James Butterfill, Head of Research and Investment Strategy at ETF Securities writes that last week saw profit taking in precious metals continuing with gold outflows totalling USD113 million.
Butterfill writes: “Following the first round of the French Presidential elections, the worst case in terms of market concerns, a Melenchon/Le Pen second round, was averted. Consequently, risk assets rallied and defensive assets sold off, with gold bearing the brunt of this with USD125 million of outflows last week.
“Despite this more bearish position in gold over the week we have seen minor outflows in short gold positions. Silver bucked this trend with inflows of USD8.5 million, it remains attractively value relative to gold but in the short-term is vulnerable to a sell-off to as futures positioning highlights all-time-highs in positive sentiment.”
Turning to oil, Butterfill writes that the recent weakness in the oil prices has been seen as a buying opportunity, with inflows of USD62 million into long position and outflows of USD3 million in short positions.
“Investor flows into crude remain very volatile as investors remain tactical; we typically see outflows when Brent crude reaches USD55/bbl and inflows when it falls close to USD50/bbl. Year-to-date figures highlight that investors remain broadly constructive on further price gains with inflows totalling USD175 million.
“We continue to see oil range bound: expectations that OPEC could announce another production cut at their 25th May meeting could provide support, however, falling marginal costs in the US tight oil industry and rising oil exports continue to undermine OPEC efforts.”
Following the presidential election in France there has been surprisingly bearish activity in the Euro, Butterfill writes.
“EUR long positions saw outflows of USD13 million while EUR short positions inflows of USD9 million, suggesting investors have become more bearish, although this maybe due to the more dovish than expected rhetoric from the ECB in Thursday’s meeting where an announcement of QE tapering was expected following the positive outcome from the French presidential elections. Much of the more negative views on the EUR were against the USD and the Swiss Franc.”
ETF Securities continues to see inflows into agricultural commodities. “We believe this is due to bargain hunting given recent price weakness. We saw a ninth straight week of inflows into Cocoa ETP: USD66 million inflows YTD. Coffee also saw strong inflows last week totalling USD8.6 million (10 per cent of AUM) and USD26 million YTD,” Butterfill says.