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Gold ETP inflows rise on the back of North Korean military tests

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In its weekly ETF flow update, ETF Securities reports that investors rushed into gold ETPs as North Korea threatened further military tests near the US seas.

ETF Securities writes that last week saw USD122.5 million inflows into gold ETPs as tensions with North Korea intensified. “While the country has been demonstrating its military force since at least the 1980’s, it has been stepping up its provocations since the summer of 2016 when Kim Jong-un claimed that he can launch a missile capable of striking the US. Verbal provocations recently turned into military action with a North Korean missile overflying Japan on Tuesday morning. Allies have responded by another demonstration of force on Thursday as US bombers joined South Korea in a live-fire bombing exercise over South Korea. Russia and China, on the other hand, are pushing for diplomatic talks.”

The result is that the gold price rose by 2.6 per cent on Tuesday, closing above USD1,318/oz., the highest level since September 2016, before ending the week at USD1,320/oz. Platinum and silver, on the other hand, recorded outflows of USD12.4 million and USD34.5 million respectively, likely on profit-taking as prices touched the highest levels since Q1 2017.

Inflows into short oil ETPs sent mix signals despite robust domestic demand for oil in the US, ETF Securities writes. “Hurricane Harvey which hit the US Gulf Coast damaged a third of US oil refineries, sending the price of heating oil and gasoline to the highest level since the summer 2015. The hurricane, downgraded to tropical depression, is the first category three to make landfall in the US since 2005.

“Oil prices, on the other hand, have barely moved from their current momentum. WTI fell 1.2 per cent over the past week while Brent remains flat.”

Natural gas was up 6.2 per cent over the week as the active contract rolled from September to October on Wednesday with a curve in contango. The firm writes that after six weeks of outflows, oil ETPs recorded USD5.8 million inflows last week, mostly into short oil ETPs, reflecting investors’ views that oil prices will remain range-bound. However, the firm concludes, US domestic demand for oil remains strong as inventories declined more than expected last week despite production continuing to rise.

Turning to metals, ETF Securities writes that copper ETPs recorded inflows on growing Chinese manufacturing activities in August. China manufacturing PMI surprised the market to the upside while service and non-manufacturing PMIs grew at their lowest pace in four months as construction activity slowed down. “Interestingly, the Caixin manufacturing PMI, released last Friday, also confirmed a pickup in in industrial activities at 51.6 against 51 expected and 51.1 in July.

“While the Chinese National Bureau of Statistics data focus on large to mid-sized companies, the Caixin manufacturing PMI tracks smaller and private businesses and therefore provides an independent reading from official numbers. The price of industrial metals rose by 3.0 per cent on average last week and 10.8 per cent over the past month. We continue to expect Chinese data to beat expectations and support demand for metals.”

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