Aneeka Gupta, Associate Director, equity and commodities research at ETF Securities by WisdomTree, reports that last week saw gold ETP outflows widen to USD113.9 million, attaining its highest level in eight weeks.
Gupta writes: “Gold prices extended its losses for a third week in a row, declining to USD1252.6 last week. Since the start of the year, gold ETPs have witnessed outflows in 15 of the 28 weeks, amounting to USD517 million worth of outflows, underpinning the negative sentiment towards the precious metal in a rising rate environment.
“Gold’s recent performance appears to be out of sync with well-known macro triggers as it failed to benefit from higher US inflation data and heightened political risks. US inflation in June, released last week attained its highest level in almost six and a half years, causing real interest rates to decline further.
“Historically gold prices would gain on this news, as they yield no interest, providing a hedge against the loss of purchasing power. In addition, the trade spat between the US and China has failed to garner interest for gold, traditionally viewed as a safe harbour in times of uncertainty. We believe the stronger US dollar, amidst the current rate rising environment in the US has dominated negative sentiment thereby exerting selling pressure on gold prices. We expect to see a recovery in gold prices over the second half of this year.”
Gupta writes that intensification of trade wars last week caused industrial metal basket ETP outflows to continue for the fourth week in a row amounting to USD20.1 million, albeit at a slower pace.
“Last week, the US administration published an additional list of Chinese products worth USD200 billion that will be subjected to a further 10 per cent tariffs effective from August 30th. The US administration is also embroiled in standoffs with the European Union, Mexico and Canada.
“Owing to its economically sensitive nature, industrial metal basket ETP outflows are reflecting the strain on the metal prices owing to the intensification of trade wars. The growing concern amongst investors is that the uncertainty around trade wars could derail global economic growth thereby impacting demand for industrial metals.
“While we cannot deny that the tit-for trade spat is triggering uncertainty, we expect to see a resolution to the trade deals before the November US midterm elections. Until then, we expect industrial metal prices to trade in a volatile range but long-term fundamentals to remain supportive.”
Last week saw inflows into crude oil ETPs stage a comeback rising to USD9.4 million after three weeks of consecutive outflows, as bargain hunters appeared to chase falling crude oil prices, Gupta comments.
“Brent crude oil prices staged its biggest daily loss in nearly two and a half years during the course of trading last week on fears of Libyan oil production returning to the market sooner than expected. This was triggered by news that oil terminals in the east of Libya that had been closed for four weeks will be resuming operations now that they have been returned to the state oil company NOC.
“The shut-in Libyan production restricted around 800,000 barrels of oil per day from the market, as Libyan oil is now expected to normalise, the market situation is likely to ease again. Bearish monthly reports from the Energy Information Agency (EIA) and the Organisation of Petroleum Exporting Countries (OPEC), both of which alluded to strong non-OPEC supply growth in 2019, also put further pressure on oil.”
