ETF Securities reports large outflows from oil and gold ETPs

Dec 5th, 2016 | By | Category: Commodities

London-based ETF Securities has announced that investors pulled $274m from their gold ETPs and $126m from their long oil ETPs during the week ended 2 December 2016, marking the largest outflows from these funds since July 2015 and August 2010 respectively.

ETF Securities reports large outflows from oil and gold ETPs

ETF Securities has announced that investors pulled $274m from their gold ETPs and $126m from their long oil ETPs during the week ended 2 December 2016.

OPEC’s landmark deal during its meeting on 30 November 2016 to cut production for the first time in eight years drove market euphoria as participants responded to the headline cut of 1.2 million barrels per day – crude oil prices swiftly rose by approximately 15% in response to the news. The large redemptions in oil ETPs following this rise has been attributed to savvy investors taking profits, believing the surge in price to be short-lived due to the market failing to properly assess the details of the deal.

Nitesh Shah, Director, Commodities Strategist, ETF Securities, writes: “However, anyone looking at the details can see that OPEC is not committing to cutting 1.2 million barrels from today’s levels. The reference figures from which they are cutting from are inflated (compare to what was produced in October). The main flaw of the agreement is that it exempts Nigeria, Libya and suspends Indonesia, but formulates a production target that includes them. It also contingent on non-OPEC countries cutting 0.6 mb/d, which we consider very ambitious.”

ETF Securities offers the ETFS Brent Crude (LON: BRNT) and ETFS WTI Crude Oil (LON: CRUD), tracking indices designed to reflect a continuously rolling investment in Brent Crude and WTI oil futures contracts respectively. ETFS Brent Crude has current assets under management (AUM) of $107m and ETFS WTI Crude Oil has AUM of $890m. Both have a total expense ratio (TER) of 0.49%.

Investors wishing to gain magnified exposure to crude oil prices, whether long or short, may consider a range of ETPs listed on the London Stock Exchange from providers ETF Securities or Boost ETP. These include the:

ETFS 1x Daily Short Brent Crude – USD (SBRT) TER – 0.98%
ETFS 2x Daily Long Brent Crude – USD (LBRT) TER – 0.98%
ETFS 1x Daily Short WTI Crude Oil – USD (SOIL) TER – 0.98%
ETFS 2x Daily Long WTI Crude Oil – USD (LOIL) TER – 0.98%
ETFS 3x Daily Long WTI Crude Oil – USD (3CRL) TER – 0.98%
ETFS 3x Daily Short WTI Crude Oil – USD (3CRS) TER – 0.98%

Boost WTI Oil 1x Short Daily ETP – USD (OILZ) TER – 0.49%
Boost WTI Oil 1x Short Daily ETP – GBP (OIZL) TER – 0.49%
Boost WTI Oil 2x Short Daily ETP – USD (2OIS) TER – 0.65%
Boost WTI Oil 2x Short Daily ETP – GBP (2OSI) TER – 0.65%
Boost WTI Oil 2x Leverage Daily ETP – USD (2OIL) TER – 0.65%
Boost WTI Oil 2x Leverage Daily ETP – GBP (2OLI) TER – 0.65%
Boost WTI Oil 3x Short Daily ETP – USD (3OIS) TER – 0.99%
Boost WTI Oil 3x Short Daily ETP – GBP (3SOI) TER – 0.99%
Boost WTI Oil 3x Leverage ETP – USD (3OIL) TER – 0.99%
Boost WTI Oil 3x Leverage ETP – GBP (3LOI) TER – 0.99%
Boost Brent Oil 3x Short Daily ETP – USD (3BRS) TER – 0.99%
Boost Brent Oil 3x Short Daily ETP – GBP (3BSR) TER – 0.99%
Boost Brent Oil 3x Leverage Daily ETP – USD (3BRL) TER – 0.99%
Boost Brent Oil 3x Leverage Daily ETP – GBP (3BLR) TER – 0.99%

According to Shah, the acceleration of outflows from gold ETPs to $274m was in response to a string of positive economic data from the US, including an upward revision to GDP, a surge in consumer confidence, ISM manufacturing reaching a 5-month high and positive labour market data, making a December interest rate hike a near certainty. Gold prices traditionally move inversely with real rates as the opportunity cost of holding non income producing assets such as gold increases with higher rates. The gold price dropped 0.5% shortly after the data was released and investors sold out of long positions.

Shah believes investors may be missing a trick however. “Inflation is likely to surge in 2017 as prior weak commodity prices fall out of the index and the pro-growth policies that the market is so enthusiastic about start to generate price increases,” he writes. “A conservative Fed is likely to remain reluctant to hike too quickly to ward off these pressures, leading to low real rates. Moreover, the Italian referendum results highlight that political instability is rife and we expect as the US-centric focus of investors to changes in Europe, demand for haven assets will once again rise.”

ETF Securities also offers the ETFS Physical Gold (LON: PHAU) which currently has $5.4bn in AUM. PHAU is backed by physical allocated gold held by HSBC Bank. It is designed to offer security holders a simple, cost-efficient and secure way to access the gold market by providing a return equivalent to the movements in the gold spot price less the TER of 0.39%.

The Source Physical Gold ETC (LON: SGLD) provides the performance of London Gold Market PM Fixing Price in USD. Each Gold P-ETC is a certificate which is secured by gold bullion held in JP Morgan Chase Bank’s London vaults. The ETC has $3.5bn in AUM and a TER of 0.29%.

The iShares Physical Gold ETC (LON: IGLN) also issues certificates which are secured by gold bullion held in JP Morgan Chase Bank’s London vaults. The ETC is the cheapest physical gold ETC in Europe at a TER of 0.25%. It has $2.2bn in AUM.

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