Cyclical Commodities Out of Favour as Greek Vote Threatens Eurozone, Gold Gains as ECB Cuts Rates

evidence of gradual growth in jobs in the US and the rate cut by the ECB last week, the ECB’s announcement of the lingering chance of a Eurozone recession kept price gains contained. This week sees the release of Eurozone economic indicators like retail sales and German industrial production, but given current trends, the outcomes are unlikely to be inspiring. Consequently, risk appetite will likely remain politically driven, dependent on real progress in averting the increasing chance of a disorderly default within the Eurozone.

ETFS Short Copper (SCOP) records largest inflows in over eight months, totalling US$10.7mn. Ongoing Eurozone uncertainty combined with poorer-than-expected manufacturing data from China saw investors’ perception about the fate of cyclical assets turn sharply bearish. Not only did investors initiate additional short positions, but ETFS Copper (COPA) incurred the first week of outflows in four weeks, totalling nearly US$2mn last week.

ECB rate cut lifts gold to six-week highs, but investors remain wary. Lower interest rates and deteriorating economic conditions in the Eurozone saw physically-backed gold ETCs again receiving the largest inflows on the ETC commodity platform last week. However, inflows totalled just US$12.7mn – the smallest inflows in 10 weeks. Investors appear tentative to make significant additions to holdings given underlying market volatility. Further uncertainty is likely to support the USD, and the strong negative correlation to gold could hinder further price appreciation in the near-term. Meanwhile, physically-backed silver ETCs continues to receive inflows, albeit modest, posting a fifth consecutive weekly inflow, with nearly US$60mn accumulated over that period.

Profit-taking in oil ETCs for fifth consecutive week, as natural gas breaks five-week run of inflows. Oil prices have experienced over 20% gains over the past month, prompting profit-taking of nearly US$100mn over the past five weeks. Oil prices, particularly WTI, have received support from declining inventory levels and the weaker USD. However, concern over economic activity is prompting investors to reduce positions. Meanwhile natural gas ETCs posted the first net weekly outflows in five weeks, totalling nearly US$7mn. Natural gas prices remain under pressure from rising inventories, however, peak demand season is nearing and if the US winter resembles last year’s conditions, gas prices have the potential to rise.

ETFS Agriculture (AIGA) receives largest inflows in three months. AIGA snapped a five-week run of weekly net outflows last week, with inflows totalling US$4.2mn. Some investors appear to be looking to diversified exposures given the erratic price-action in some individual agricultural commodities in 2011. Generally thin inventory levels are leaving little room for the type of supply shocks that have been prevalent during 2011. ETFS Wheat (WEAT) received its fourth consecutive weekly inflow, with over US$10mn inflow over the period.