Aneeka Gupta, associate director, equity and commodities at ETF Securities, reports that last week saw gold ETPs take the lion’s share of inflows, garnering inflows worth USD122.7 million, marking its highest level in 33 weeks.
“A turbulent week in Italian politics coupled with the intensification of US trade tariffs supported a reversal in trend of the priors two weeks of outflows among gold ETPs,” she writes.
“Fears of a new round of elections in Italy sparked by the rejection of the candidate for the economic and finance minister by President Sergio Mattarella widened the gap between yields on the 10 year Italian and German government bonds to over 250 Basis Points (Bps), its highest level since October 2013.
“Gold prices followed fluctuations in the yield spread of the Italian versus German government bonds, that for a time climbed above 300Bps. However, in a spectacular reversal of political fortunes towards the end of the week, Italy’s Five Star Movement and League parties managed to form a government at the last minute, gaining the acceptance of the President.
“While the short term reaction has been a relief following the appointment of the new government, markets continue to trade on tender hooks as the new populist administration in Italy embarks on a course of confrontation with the EU.”
Meanwhile, Gupta notes that the uncertainty linked to trade tensions are back to the fore again overshadowing the positive economic data in the US.
“Payroll data released on Friday, showed nonfarm payrolls rose by 223k beating expectations and wage growth rose 2.8 per cent to its highest level since 2009 providing signs of growing inflation risks. This paves the way for further rates hikes by the Federal Reserve which should keep gold prices in check as the next meeting takes place in two weeks’ time.
“That being said, gold prices seem to be profiting more from the escalating spiral of tit-for-tat trade wars that were triggered after the US tariffs on steel and aluminium imports came into effect on Friday last week. Silver ETPs faced USD7.4 million of outflows on profit-taking, reversing the last week’s surge of inflows.”
Gupta reports that diversified basket ETPs attracted USD46 million of inflows last week, attaining its highest level in 13 weeks. Broad commodity basket ETPs with a longer-term horizon are garnering interest as investors appear to be rotating towards the asset class, she observes.
Turning to energy, energy sector ETP flows bifurcated with energy basket ETPs garnering inflows worth USD23.1 million surging to their highest level since December 2015, while crude oil ETPs suffered outflows worth USD10.1 million, extending outflows for the eighth week in a row.
Last week, copper ETPs saw USD12.2 million worth of redemptions, reversing the prior two weeks of inflows, as investors appeared to take profit. Concerns of supply disruptions supported copper prices higher by 1 per cent last week.
Gupta writes that collective wage negotiations are currently underway at Escondida copper mine in Chile and the outcome is highly unpredictable since the union’s demands are expected to be higher than last year.
“Last year saw the longest strike in Chilean mining history at this mine causing substantial production outages. In addition, the Tamil-Nadu state government in India ordered closure of Vedanta’s 400kt Sterlite copper smelter, owing to environmental concerns.
“While it is uncertain if the closure is likely to be permanent, the absence of the Sterlite smelter jeopardises 1.7 per cent of global copper supply. Positive economic data from the US (ISM Manufacturing) and China (Purchasing Managers Index) have helped offset concerns from trade tensions.”
