Gold ETC Inflows Surge by Most in 5 Weeks As Spain and Italy Dangle Over the Brink

lender of last resort for countries in the Eurozone. However, with government bond yields grinding higher in the absence of a credible bailout package, sovereign debt burdens are becoming even more unmanageable. With Spanish yields around 7% and Italian yields near 8% there is a very real risk that a self-reinforcing downward spiral will take hold that could take Europe’s banking system with it. On the other hand, at risk is the credibility of the ECB as an inflation fighter, as bond purchases could potentially have inflationary consequences if it engages in monetising the debts of the Eurozone. The main macro focus this week will be on whether a pick-up in economic growth can help Europe climb out of its hole.
Most recent indicators, unfortunately, point to continued slowing growth in Europe. Eurozone PMIs released later this week and Germany’s IFO survey will therefore be a key focus of attention. US GDP and consumer sentiment will also be watched closely to see if recent improved data was a fluke or the start of a new trend.

Physically-backed gold ETCs receive largest inflows in 5 weeks as investors look to defensive assets to counter escalating sovereign concerns. ETF Securities Physically-backed gold ETCs received US $136mn last week. Investors flocked to gold for its defensive properties, as bond yields in Italy, Spain and even France jumped higher, with Spanish 10 year yields popping over the 7% potential ‘point of no return’ level for the first time and Italy looking at 8%. Physically-backed silver ETCs also experienced their 7th consecutive week of net inflows, with nearly US$90mn over the period.

Crude Oil ETCs experience seventh consecutive week of net withdrawals. Brent and WTI prices converged last week, pushing the spread between the benchmarks to the lowest levels since early March 2011. The ongoing fiscal and debt problems in the Eurozone have constrained Brent prices. Meanwhile the reports of the sale of the Seaway pipeline by ConocoPhillips saw WTI prices rise last week. The news prompted expectations of potentially lower inventory levels at Cushing because of speculation that the current pipeline owners could reverse the direction of the crude flow away from Cushing. Bargain hunters put US$7.3mn into ETFS Leveraged Natural Gas (LNGA) last week as natural gas prices dropped nearly 5%. Forecasts of milder weather conditions in the US have kept natural gas prices under intense pressure. Rising inventories have forced prices to the lowest levels since the 2008 financial crisis.

Industrial metals ETCs record the fifth consecutive week of net inflows. Ongoing price declines and inventory reductions in the industrial metals complex continued to attract investors last week. Although there have been five consecutive weeks of net inflows into industrial metals, the positive momentum is fading, with only US$1.8mn of inflows last week. Softer prices are largely a product of a reduction in investor risk appetite ETFS Copper (COPA) remains the preferred vehicle for investors, accounting for over 65% of the inflows into industrial metals ETCs over the past month.