Investors buying on weakness in oil & gold miners

ETF Securities Weekly Flows Analysis – Investors buying on weakness in oil & gold miners

• The recent gold price weakness saw investors buy gold miners, with two week inflows of US$68mn.
• Recent oil price weakness has prompted monthly inflows of US$165mn, representing 9% of AuM.
• Cocoa inflows last week totalled US$9mn while inflows in coffee totalled US$7mn with recent weakness has been seen as a buying opportunity.

Equity ETFs saw the highest inflows this week with US$42mn. The recent weakness in the gold price has prompted investors to reassess gold miners which has seen inflows of US$68mn over the last two weeks. Historically gold miners have a high beta of 2x relative to the gold price but in recent months they have underperformed and investors have been taking advantage of this disparity. We see an improved outlook for gold miners, while they currently trade at 46x price/earnings, in line with the long-term average, EBITDA has tripled over the last year as the gold price has recovered, highlighting that despite aggressive capital expenditure cuts their profitability is improving. Other thematics remain popular such as robotics and cyber security which saw inflows of US$9mn and US$12mn last week respectively, having had consistent inflows on a weekly basis since the beginning of the year.

Precious metals saw a modest inflow of US$5m after the outflows following the US Federal Reserve’s interest rate hike mid-June. Despite the threat of interest rate hikes this year investors continue to favour precious metals with year to date inflows of US$609mn. We believe this is due to investors continued concern for geopolitics and the consequences of unwinding record loose monetary policy. We see a close correlation to politically turbulent events in the US and inflows into Gold ETPs. Our gold fair value for the year end remains at US$1230 per ounce, assuming that no major geopolitical events surface this year.

Price strength in palladium this year has prompted investors to take profits since the beginning of the year although we saw no activity last week and a slowing over the last month. We believe there has been tight liquidity due increased demand from Hong Kong for the metal, suggesting that China maybe stockpiling the metal.

Crude oil inflows continued this week with inflows representing 9% of assets under management over the last month. We have witnessed a trading mentality amongst investors who typically buy on price weakness, this weeks’ fall of 4% was a continuation of the “buy on weakness” trend.

Cocoa inflows last week totalled a significant US$9mn while inflows in coffee totalled US$7mn for the week. It seems that investors continue to buy those soft commodities with the poorest performance: both cocoa and coffee were down 10% and 7.5% as of Thursday’s close respectively versus -4.2% for the broader basket of soft commodities before posting a modest rebound.

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