WisdomTree reports long gold ETPS received highest inflows since June 2018
Nitesh Shah, Director, Research at WisdomTree, writes that, last week, long gold ETPs received the highest inflows since June 2018 as investors appeared to be bargain-hunting.
“As gold fell 3.0 per cent last week, ETP investors bought the metal with the strongest vigour since June 2018 – buying USD85.5 million gold ETPs.
“It appears that many ETP investors agree with our view that gold has been oversold. As we articulated in gold’s initial lacklustre response to Turkey likely to be a red herring, gold could respond with a delay to the economic crisis in Turkey. Gold was held down last week by US Dollar appreciation. Normally in periods of stress, gold’s negative correlation with the Dollar dissipates, but the threat of Turkey’s central bank selling gold during this period of stress on the Lira could be a key source of negative price pressure on the metal.
“We argue that gold is likely to become a coveted asset by Turkish households and investors during this period of stress. Moreover, if there are any threats by the Turkish government to control the movement of foreign currencies or gold, that should raise the political premia in gold.
“Silver and platinum ETPs see large outflows as prices capitulate. Silver and platinum fell 4.7 per cent and 5.9 per cent last week respectively. They fell significantly harder than gold as they lack the same safe-haven credentials as the yellow metal. Investors sold both of these more cyclically-exposed metals, with outflows of USD19.1 million in silver ETPs (highest since June 2018) and outflows of USD25.9 million in platinum ETPs (highest since August 2016).”
Shah writes that long nickel has seen eight continuous weeks of inflows despite prices unravelling last week.
“There were USD53 million inflows into long nickel last week. Although two weeks ago nickel prices seemed to be shaking off the trade-war stigma, last week prices plunged again in a broad cyclical sell-off. All industrial metals and energy prices fell as the market entered a ‘risk-off’ mode. However, we believe that should the Turkish situation be contained, cyclical assets are likely to make a recovery. We also believe that on balance trade-wars should be metal price-positive as the disruption to supply chains should outweigh the damage to demand.
“Long copper ETP outflows continued as the Escondida mine labour dispute reached a resolution. Following government mediated discussions, the union and its members have accepted a new contract from BHP Billiton. That ends a multi-year stalemate - that saw a 44-day miner strike last year. ETP investors sold USD20.2 million of copper ETPs. However, we are not convinced that copper supply will materially rise as a result of an agreement. Disruptions to global supply from trade wars will likely constrain supply.”
Finally WisdomTree writes that investors sell USD10.2 million of their short-USD, long-EUR positions. Last week there were USD10.2 million outflows from short-USD, long EUR ETPs, reversing most of the USD11.6 million inflows from the prior two weeks. The Euro has depreciated almost 2 per cent against the US Dollar in the past two weeks amid fears around contagion from Turkey, the firm writes.