Overview: The announcement of additional quantitative easing by the Fed to replace “operation twist” was not enough to keep the gold price supported. ETP investors saw this as a buying opportunity ahead of the approaching fiscal cliff……
Investor attention has shifted from on-going Eurozone sovereign debt problems to US policy recently. Fear that the US Congress might actually do the unthinkable and drive the US economy into recession is now investors’ greatest concern. Improving growth conditions in the US and China helped drive inflows into WTI crude ETPs last week. Therefore while key tail risks remain, the growth and liquidity outlook is pointing to a potential bullish turning point for broad commodities in 2013, the more cyclical ones in particular.
Gold ETPs see US$32m of inflows on additional Fed stimulus. The US Fed announced additional US$45bn of monthly purchases on Wednesday, with the launch of so-called QE4. Although the initial reaction following the Fed’s announcement was positive, the gold price dropped below the US$1,700 mark later on in the week. This is likely the product of the thin investment demand going into year-end and the fact that many market participants had expected the Fed to replace “operation twist” at some stage in the future given its on-going strong commitment to economic growth. Moving into 2013, the environment is still very positive for gold given the ultra-loose monetary policy and the lack of political cohesion within the Eurozone. Gold’s defensive properties should be supportive of the price given the threats to the nascent global recovery and continued high European sovereign debt risks.
Platinum ETCs register US$34m of outflows on profit taking. The platinum price recently rose on the back of South Africa tight energy supply and the closure of nine shafts. The strong recent gains have apparently prompted investors to lock in some profits before the approaching year-end. On the demand side, the outlook for platinum in 2013 remains relatively gloomy as European car sales are at a 19-year low. However, price support may still come from continuous disruptions in South Africa, platinum’s biggest producer.
ETFS Daily Leveraged Natural Gas (LNGA) sees US$17.1m of inflows as recent slump in prices is seen as buying opportunity. The Henry Hub benchmark dropped by over 5% last week, fuelled by an unexpected build-up in inventories. Expectations of colder weather from next week through January, coupled with relatively low prices, prompted investors to go long the commodity. At the same time, WTI oil ETCs saw over US$16m of new inflows on stronger than expected US economic data. A potential recovery in US demand could soak up some of the current US crude surplus, which is weighing on WTI prices.
Grain ETCs see strong outflows on USDA December WASDE report. ETFS Grains (AIGG) and ETFS Wheat (WEAT) both registered strong outflows, totalling US$9.2m and US$6.2m respectively, after the USDA left corn and soybean stocks unchanged from last month’s levels and cut US wheat exports by 50m bushels. The USDA predicted lower prices for most grains last week. Wheat prices reacted strongly on the news, falling by over 6%.
Key events to watch this week: US fiscal negotiations and economic data. With the fiscal cliff deadline fast approaching, investor focus will likely remain on US budgetary discussions. US GDP and housing stats will also be monitored by investors as further confirmation of the strength of the economy. On the central bank front, Bank of Japan will meet this week to decide on rates and Bank of England minutes will also be released.
Source: ETFSecurities – ETFWorld.co.uk
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