Investors flock to gold amid geopolitical tensions, reports ETF Securities

Aug 17th, 2017 | By | Category: Commodities

London-based ETF Securities has reported that its gold ETPs attracted $63.2 million of net new assets in the week ending Friday 11 August 2017. The strong asset gathering, reportedly in response to demand for portfolio protection amid rising geopolitical tensions, marked the third consecutive week of positive net inflows for the yellow metal.

Investors flock to gold amid geopolitical tensions, reports ETF Securities

ETF Securities reports investors poured $63.2 million into its gold ETPs during the week ended Friday 11 August 2017.

Martin Arnold, Director, FX and macro strategist, ETF Securities, commented: “President Trump’s recent ‘fire and fury’ comments about the simmering tension over the North Korean nuclear situation have sparked gold to life. The gold price has rallied over 2% as investors have flocked to the metal as a portfolio hedge against risk. Certainly, with the spike in the VIX and the decline in global equity markets since the escalation in geopolitical risk, such portfolio rotation towards more defensive investments have been justified.”

ETF Securities’ largest gold ETP is the ETFS Physical Gold which trades in either US dollars (LON: PHAU) or pounds sterling (LON: PHGP). It has approximately $5.9bn in assets under management (AUM) and a management fee of 0.39%.

While gold ETPs saw strong net inflows, ETF Securities reports that its ETPs tracking various platinum group metals experienced outflows totalling $12.4m.

Arnold said: “The ‘other’ precious metals have largely industrial applications and therefore have little perception as safehaven assets. After strong gains, particularly in palladium, investors have begun to take profits. Palladium’s first outflows in five weeks comes after 33% run up over 2017, which appears somewhat divorced from fundamentals. Futures market positioning, nonetheless, remains near multi-year highs.”

Oil ETP outflows continued for the 4th consecutive week with $64.6m being withdrawn from long oil ETPs amid doubts that OPEC could successfully implement output cutbacks. Crude prices were however up nearly 7% over the past week.

“Oil has certainly lost its lustre for investors, despite a strong stock withdrawal from the US and continued rhetoric from the International Energy Agency about demand being set to recover in the second half of the year,” said Arnold.  “With peak seasonal demand coming close to an end and OPEC’s meeting in Abu Dhabi – forecast by some to provide a dressing down to poorly complying members – being a non-event, investors feel that the prices are reaching a near-term peak. We continue to expect that oil is likely to remain range-bound between $40-55/bbl.”

Investors looking for long oil exposure may wish to consider the ETFS Brent 1mth (LON: OILB) or the ETFS WTI Crude Oil (LON: CRUD). OILB and CRUD have AUM of approximately $370m and $810m respectively. Each trades in US dollars and has a management fee of 0.49%. ETF Securities also offers a suite of inverse and leveraged ETPs tracking the performance of oil futures.

Turning to foreign exchange markets, investors have become increasingly bullish on the prospects for the US dollar with ETF Securities reporting weekly inflows into its long USD ETPs reached their highest level in 18 months, totalling $27.4m. The inflows were broadly split between ETPs referencing the US dollar against the sterling, yen and renminbi.

Arnold notes: “Investors appear to be indicating that the case for tighter US policy is more justified than for other major developed economies: the UK is beset by Brexit related fears, while the eurozone and Japanese inflation pressure is almost nonexistent. Meanwhile US dollar futures market positioning has slumped to the lowest levels in over three years – since May 2014.”

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