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Gold and Oil Back In Favour As Geopolitical Risks Rise
Gold and Oil Back In Favour As Geopolitical Risks Rise. Geopolitical risk took another lurch for the worse last week, with Russia imposing a full ban on food imports and the US intervening in Iraq. While most macro data continues to point to a pick-up in global growth, benefiting cyclical assets, investors remain jittery and largely on the sidelines. With the geopolitical situation likely to remain tense, we expect defensive assets to continue to see strong demand in the near-term.
Gold and oil back in favour as geopolitical risks linger. Total inflows into gold and oil ETPs reached US$223mn and US$82mn respectively over the past month as geopolitical risks in Russia and the Middle East cloud the positive global economic outlook. The US authorised limited air strikes in Iraq last week, while Russia banned imports of food from the EU and the US, increasing risk aversion. While oil production and export facilities in southern Iraq have yet to be affected, a further push by ISIS into the south would likely trigger another spike in oil prices. With the geopolitical situation expected to remain tense, demand for defensive assets is likely to remain strong. Meanwhile, ETFS Physical Silver (PHAG) saw US$8.5mn of outflows as the silver price came under pressure last week. Near-term headwinds are likely to continue to weigh on silver until it is clear that industrial demand is coming through. With the US manufacturing ISM rising to its highest level since 2011 and China demand picking up, we anticipate that industrial demand support will ultimately offset negative pressure from expectations of rising real interest rates.
Copper and aluminium receive combined inflows of US$127mn as investors buy into China’s growth story. While weak China’s import data and heightened geopolitical risks weighed on most industrial metal prices last week, growth in the world’s second largest economy remains robust and with strong government support the industrial metal rally looks set to continue. Stronger US growth combined with a rebound in Chinese manufacturing data and more decisive monetary stimulus in the euro area should continue to be supportive of commodity prices, metals in particular, in the coming months.
Long wheat ETPs receive US$2.7mn of inflows as abundant rainfall in Europe decreased the availability of high quality wheat. Wheat prices reacting strongly to the news and were up 5.9% last week, after having lost over 7% since the beginning of the year. Long cotton ETPs also saw inflows last week, totalling US$2.6mn, on expectations of a drought in Australia, the world’s cotton 3rd largest cotton exporter. At the same time, investors reduced their coffee exposure, with long and leveraged coffee ETPs seeing over US$5mn of outflows, as price plummeted 5.7% last week.
Key events to watch this week
Industrial production statistics for a number of countries will be coming out this week, with China, the US and the Eurozone’s likely to be watched closely. Bank of England Inflation Report will also be looked at by investors, as inflationary pressure might prompt an earlier-than-expected rate hike.
Important Information
This communication has been provided by ETF Securities (UK) Limited (”ETFS UK”) which is authorised and regulated by the United Kingdom Financial Conduct Authority.
The third week of December was rough for crypto prices. The Nasdaq Crypto Index™ (NCI™) fell 9.7%, led by lackluster performance from Bitcoin (-3.2%) Ethereum (-2.3%) and Solana (-6.4%). This negative performance comes after weeks of strong price action in the crypto market, fueled by a series of positive developments. On Wednesday, the Fed lowered rates once again but Chair Powell suggested these cuts may slow.
Bitcoin ETFs experience strong selling spree after positive streak of days
US spot Bitcoin ETFs experienced a record $680 million in net outflows on Thursday, ending a 15-day streak of positive flows totaling $6.7 billion. This could indicate potential profit-taking by investors, given Bitcoin’s impressive 119% appreciation since the start of the year. If we are indeed at the beginning of a bull market, corrections during this cycle are expected to be nominally larger, as BTC, currently valued at around $100,000, has the potential for further appreciation throughout this cycle.
Ether ETFs record inflows in December
ETH ETFs attracted $1.66 billion in new investments this December, accounting for 74% of their $2.24 billion total inflows since inception and reflecting growing institutional interest beyond Bitcoin. The strong inflow-to-market cap ratio signals rising confidence in Ethereum, potentially paving the way for a broader range of regulated crypto products to gain prominence.
From Hashdex: With the year’s end approaching, we would like to invite our readers to explore our Outlook 2025, as it offers key insights to help investors confidently navigate the crypto market in this upcoming year.
Crypto markets drop, Powell hints at fewer cuts, and Ethereum ETFs record inflows
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