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Geopolitical tensions drive investors to gold ETPs

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ETF Securities’ weekly update on ETF and ETP flows finds that geopolitical tensions drove investors to safe haven gold with a third consecutive week of inflows.

The firm writes that President Trump’s recent ‘fire and fury’ comments about the simmering tension over the North Korean nuclear situation have sparked gold to life, seeing it rally over 2 per cent as investors have flocked to the metal as a portfolio hedge against risk.

“Certainly, with the spike in the VIX and the decline in global equity markets since the escalation in geopolitical risk, such portfolio rotation towards more defensive investments have been justified.

“Long USD inflows reach the highest level in 18 months, totalling USD27.4 million. Investors appear to be indicating that the case for tighter US policy ismore justified than for other major developed economies: the UK is beset by Brexit related fears, while the Eurozone and Japanese inflation pressure is almost non existent.”

Meanwhile, USD futures market positioning has slumped to the lowest levels in over three years – since May 2014. The inflows for the USD ETPs have been broadly split between the British Pound, the Japanese Yen and the Chinese Renminbi.

Oil ETP outflows continued for the fourth consecutive week on OPEC output cutback doubts. ETF Securities writes that investors have withdrawn USD64.6 million from long oil ETPs – the fourth consecutive week of outflows – as crude prices have rebounded nearly 7 per cent over the past week.

Oil has certainly lost its lustre for investors, despite a strong stock withdrawal from the US and continued rhetoric from the International Energy Agency about demand being set to recover in the second half of the year, in turn rebalancing the global oil market.

The firm writes that with peak seasonal demand coming close to an end and OPEC’s meeting in Abu Dhabi – forecast by some to provide a dressing down to poorly complying members – being a non-event, investors feel that the prices are reaching a near-term peak.

“We continue to expect that oil is likely to remain rangebound between USD40-55/bbl.”

The ‘other’ precious metals have largely industrial applications and therefore have little perception as safe haven assets, ETF Securities writes. After strong gains, particularly in palladium, investors have begun to take profits. Palladium’s first outflows in five weeks comes after 33 per cent run up over 2017, which appears somewhat divorced from fundamentals. Futures market positioning, nonetheless, remains near multi-year highs, the firm concludes.

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