Gold and oil ETPs enjoy strong net inflows, according to ETF Securities

Apr 5th, 2016 | By | Category: Commodities

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Gold exchange-traded products saw net inflows reach $95m over the past week as investors remain bullish on the precious metal following dovish comments from the US Federal Reserve’s Janet Yellen.

Gold and oil ETPs enjoy strong net inflows, according to ETF Securities

ETF Securities recorded net inflows of $96.7m into gold ETPs and $19.9m into oil ETPs over the past week.

Data from commodity exchange traded product provider ETF Securities showed that the ETFS Physical Gold (PHAU) gained 1.3% over the week to 4th April 2016, while its ETFS Physical Silver (PHAG) gained 0.6% and recorded inflows for the sixth consecutive week worth $9.2m.

“I consider it appropriate for the committee to proceed cautiously in adjusting policy,” said Federal Reserve Chair Janet Yellen while speaking at the Economic Club of New York on 29 March 2016. “Reflecting global economic and financial developments since December, however, the pace of rate increases is now expected to be somewhat slower.”

Aneeka Gupta, Associate – Equity and Commodities Strategist at ETF Securities, said in a statement: “Gold prices caught a fresh bid after a more cautious policy trajectory was inferred from Fed chair Yellen’s comments early in the week boosting inflows into gold ETPs by $96.7m. Furthermore the Fed Chair remained unsure of the durability of the recent spike in inflation reinforcing a more gradual rate normalization path in the US.”

ETF Securities remain cautious on the latest developments of Federal Reserve policy, highlighting the fact that continued signs of robustness in the US economy may lead to a more aggressive policy stance in the future. “We believe the positive beat in payrolls data provides evidence of economic resilience that could allow the Federal Reserve to raise interest rates more often than projected, thereby avoiding a policy error,” said Gupta.

It is likely that the performance of gold-tracking ETPs may suffer as interest rates increase. Gold pays no income in the form of interest or dividends so it tends to become relatively less attractive as interest rates in the economy increase.

The other commodity to gather strong inflows over the week was oil, led by WTI crude oil ETPs with positive inflows of $19.9m. It followed four consecutive weeks of outflows.

Gupta said: “This is reflective of declining US crude oil production for the fourth month in a row. We expect this decline to continue since drilling activity has been lacklustre with 30% active oil rigs idled over the past 14 weeks. On the other hand oil production by OPEC has risen by 100,000 barrels per day in March owing to Iran and Iraq.”

ETF Securities expects oil ETPs to trade in a volatile range over the coming month as market participants attempt to discern how suggested oil production caps will be met by key OPEC states, while declining US oil production may serve to soften any significant price drops. “The precondition laid out by Saudi Arabia to freeze output subject to Iran and other major producers following suit is casting doubts on the ability of these nations to reach an agreement at the next Doha meeting scheduled on April 17.” We expect oil prices to trade a volatile range on the back of acrimonious decision making over the capping of oil production limits by OPEC though declining US oil production may help alleviate sharp price drops,” said Gupta.

ETFS Brent Crude (BRNT) and ETFS WTI Crude Oil (CRUD) finished the week down 1.6% and 2.8% respectively.

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