Hawkish Fed drives gold ETF outflows, reports ETF Securities

Mar 7th, 2017 | By | Category: Commodities

London-based ETF Securities has reported that its gold ETFs saw $96 million in outflows during the week beginning 27th February, driven by hawkish rhetoric from the US Federal Reserve (Fed), marking the first net outflows for five weeks. Fed commentary has led investors to change their views on the timing of the Fed’s next move with the Fed Funds futures implied probability of a rate rise later this month rising from 40% at the start of the week to 90% by the end.

Hawkish Fed drives Gold ETF outflows

Gold was down 1.8% in the week beginning 27th February as investor expectations of a US rate hike in March rose significantly.

Better-than-expected ISM manufacturing, consumer confidence, durable goods orders and core PCE inflation data released last week was seen to provide the Fed with ammunition for a rate hike. According to ETF Securities, a strong reading for February’s payroll data, released 10th March, may give the Fed a further reason to move rates higher at its March 15th meeting. While gold held steady in the first half of the week amid the burgeoning political risks around Europe, French presidential election candidate Emmanuel Macron’s announcement of his policy platform unwound part of the ‘fear trade’ as markets cheered on his centrist appeal.

Gold ended the week down 1.8% at $1226.50 per ounce. Nitesh Shah, director of commodity strategies, ETF Securities said, “We still believe that even if the Fed raises rates this month, elevated inflationary pressure will keep a lid on real interest rates, which will be gold price supportive in the first half of the year.” Gold exposure can be gained using ETFs such as the ETFS Physical Gold (LON: PHAU) which has AUM of $5.8 billion and a total expense ratio (TER) of 0.39%.

Other notable flows for the week saw technology-themed ETFs continue to gain favour. ETF Securities’ Robotics and cyber security themed ETFs saw $8m and $16m inflows respectively. This marks the highest inflows to cyber security ETFs since inception. The ROBO Global Robotics and Automation GO UCITS ETF (LON: ROBO), which gives exposure to equities of firms engaged in the global robotics industry, has returned 9.9% YTD with AUM of £334m and a TER of 0.80%. The ETFS ISE Cyber Security GO UCITS ETF (LON ISPY) gives exposure to companies actively involved in the provision of cyber security and has seen returns of 9.4% YTD with AUM of $97m and a TER of 0.75%.

The week also marked the largest flows into short FTSE 100 ETFs since July 2016 with $6m of net gatherings. ETF Securities attributed the increase in investor demand to the House of Lords rejecting certain parts of the Brexit Bill, thereby increasing the chance of prolonged disagreement between the government and the second chamber of parliament. Inverse FTSE exposure can be gained through the ETFS FTSE 100 Super Short Strategy (Daily 2x) GO UCITS ETF (LON: SUK2) which has fallen 8.1% YTD and has AUM of $10m and a TER of 0.60%

Other commodity flows saw long oil ETPs register the first net inflows for five weeks, after an oil price dip of 1.2%. Inflows were $21m for the week. Shah said, “Despite OPEC’s efforts to cut production, US oil continues to grow and inventories are elevated, weighing on oil price.” ETF Securities offers the ETFS WTI Crude Oil (LON: CRUD) which has AUM of $773m and a TER of 0.49%.

The week also saw outflows of $16m from nickel ETPs and $13m from Zinc ETPs, whereas diversified industrial metals ETPs notched up $16m inflows. “Picking the individual winners in industrial metals appears more difficult when prices are so volatile, but the broad theme of tightening supply and rising demand is set to benefit the commodity sub-sector,” commented Shah. The ETFS Industrial Metals (LON: AIGI) has returned 7.5% YTD and has AUM of $300m and a TER of 0.49%

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