ETF Securities Weekly Flows Analysis – Precious metal flows bifurcated by gold and silver
- Industrial metal ETPs saw the lion’s share of outflows amounting to US$130.4mn, led by outflows from broad basket ETPs
- Precious metal ETP flows were polarised, as gold ETPs suffer the largest outflows while silver ETPs receive the largest inflows
- Crude oil ETP outflows persist for the 12th week in a row, largely driven by WTI crude oil ETPs.
Industrial metal ETPs break the two week winning streak of inflows, registering outflows of US$130.4mn on the back of profit taking by investors after strong price gains. The outflows were dominated by broad basket ETPs worth US$118.4mn. We expect the supply deficit to extend into 2018 owing to the lack of investment in mining infrastructure. In addition strong growth from emerging markets (accounting for 70% of demand) should support demand for industrial metals going forward.
Gold ETPs suffer outflows of US$39.6mn for the third consecutive week. Gold is poised for its biggest weekly price drop -2.63% since May as the strong jobs report released on Friday underpins the Fed’s case for tighter monetary policy, thereby curbing the appeal for the non-interest bearing bullion. The anticipation of higher U.S. interest rates coupled with progress on tax reform has helped lift the US dollar higher adding further pressure on gold prices. Furthermore the improvement in risk appetite considering the postponement of the US partial government shutdown and ongoing progress in the Brexit negotiations have diminished gold’s role as a safe haven asset. Bitcoin’s explosive appreciation has also taken some of the shine off gold. We expect gold to remain flat over the coming year discounting the likelihood of any geopolitical flare up.
Record low prices drive bargain hunters into silver ETPs attracting the highest inflows worth US$42.5mn in 10 weeks. Known to derive majority of its use in the industrial applications sector, silver looks under-priced when compared to the rally staged by the industrial metals sector. It has also lagged its precious metal counterparts owing to negative sentiment. As the narrative for improving global economic conditions remains intact, we expect silver to rebound from current levels buoyed by positive investor sentiment and rising industrial demand.
Outflows from crude oil ETPs amounting to US$20.4mn persist for the 12th consecutive week, largely driven by outflows worth US$19.3mn from WTI crude oil ETPs. We continue to believe that the OPEC led rally is likely to be short lived and the current high compliances levels are at risk of slipping as the option for a premature exit from the production cuts has been inserted. Given the current pace of oil production expansion in the US, the global supply deficit will be short lived and this is likely to weigh on prices going forward.
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