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WisdomTree Europe says gold ETP inflows continue to strengthen

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Gold ETP inflows worth USD54.9 million garnered momentum for the fifth week in a row last week, writes Aneeka Gupta, Associate Director, Research, WisdomTree Europe.

The increase in magnitude of inflows into gold ETPs is a testament of investors positioning for a recovery in gold prices, she writes. According to Commodity Futures Trading Commission (CFTC), net speculative positioning on gold futures declined to a 17-year low, as of 28 August 2018, illustrating the extent of negative sentiment towards the gold market.
 
“We believe sentiment towards gold has fallen excessively low and an upward correction is due. Our view is being resonated across last week’s gold ETP flows. That being said, the gold price struggled last week owing to two main obstacles―the firmer US Dollar and the better-than-expected US labour market report, making it more likely for the Federal Reserve to stick with its rate hike trajectory. While it’s likely the price will remain volatile in the short term, we believe the long-term trajectory is upward for gold prices.” 
 
Meanwhile, aluminium ETPs suffered the highest outflows in four years ahead of annual supply contract negotiations at the Metal Bulletin conference in Berlin.
 
The aluminium price declined sharply by 2.76 per cent last week owing to a combination of the escalation of the ongoing trade wars coupled with news that the US had softened its stance towards Rusal’s (Russia’s biggest aluminium producer) customers by introducing the October 23 deadline: the US has allowed Rusal’s customers with existing supply deals to continue engaging with the company until October 23, 2018.
 
Gupta writes that while calm has returned to the market for now, chaos could unravel if Rusal is unable to secure a deal with the US Treasury. Added to that, ahead of November’s congressional elections, there are concerns that it will be too difficult politically for the Treasury to withdraw sanctions before the October deadline.
The outlook on the platinum market turned more bearish last week after the World Platinum Investment Council reported an 8 per cent year on year decline in second quarter platinum demand owing to weak demand from the automotive industry and tepid investment interest.
 
Added to that, supply increased marginally, creating a surplus of 340,000 contracts for the second quarter. Last week also saw the decision on the ban on diesel cars in Frankfurt come into force from February 2019, adding to further pressure on the platinum market.
 
Finally turning to energy ETPs, Gupta says that they faced redemptions for the second week in a row.
 
Energy prices were weaker last week after API data showed US stocks had risen higher than expected at 1.17 million barrels. However, the US Department of Energy painted a more optimistic outlook as US crude oil stocks declined by 4.3 million barrels, marking its lowest level since February 2015.
 
Gupta writes: “We believe most of the price slide was on the back of profit-taking and expect the risk on mode following the strong US labour market report to support energy prices higher this week.”

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