Copper ETCs see inflows as do silver ETPs but gold still out of favour says ETF Securities

22nd April 2013

ETF Securities puts out regular notes on flows in and out of different types of funds, but this week’s will arguably of much more interest, as investors try and make sense of what is happening to highly volatile commodities.

In a note, Nicholas Brooks, Head of Research and Strategy at ETF Securities writes that “fears that the economic outlook still strong, recent price declines, particularly for cyclical commodities, are being seen as attractive entry points to establish new long positions”.

Assessing the various ETFs he notes that copper received the largest inflows.

“Long copper ETCs receive largest inflows in three months, totalling US$40mn. While sentiment remains fickle in financial markets, the trend toward rotation into more cyclical areas of the market and recent weakness in copper prices is prompting new inflows. The Chinese growth fears that drove the recent copper price decline appear overdone, while the supply picture does not appear as rosy as a few weeks ago. Although copper inventories have experienced strong gains in recent months, strikes in Chile and a mine wall collapse in the US may remove the supply surplus forecast only a few weeks ago.”

He suggests that investors took advantage of falls in the price of silver to invest.

Bargain hunting drives long silver ETPs inflows to 17-month high, totalling US$25mn. Silver bucked the precious metal trend last week as bargain hunters saw the 30-month price low as an attractive entry point. A near 15% price slump in the silver price over the past week has sparked a strong buying reaction, as investors continued to accumulate positions in what is the second largest globally held exchange-traded commodity after gold. While gold’s recent price decline was the catalyst for silver’s weakness, six weeks of consecutive net inflows indicate investors believe its broader industrial demand base could become the catalyst for future gains.

He says that gold remains out-of-favour as outflows reach 8-week high. “Investors withdrew US$239mn from physically-backed gold ETPs last week, as the gold price reached a 26-month low. While there are reports of strong physical demand in countries such as India, futures market positioning remains bearish.”

Finally Brooks say that surprisingly there were record outflows from ETFS Soybeans (SOYA), totalling $18mn.  “The large outflows for SOYA are somewhat surprising given the modest moves elsewhere in the sector. Some profit-taking is the likely reason, given that soybean prices have significantly outperformed rival crops like wheat and corn. Futures market positioning has also declined, with net longs dropping over 50% over the past month. South American crops are expected to be plentiful.”


28 thoughts on “Copper ETCs see inflows as do silver ETPs but gold still out of favour says ETF Securities”

  1. therrawbuzzin says:

    Hi Shaun.
    There’s more than one big difference now though.
    Zirp. Poor returns positively begs people to get out of cash and into tangible forms of assets like property.
    A deeper suspicion of the susceptibility of bank bail-ins adds to the clamour to get out of cash.
    Tax avoidance/evasion at home becoming, or threatening to become, more difficult for foreign investors.
    These are all going to have an inflationary effect on non-cash assets probably not seen in 2007
    If you include these three factors, would you reach the same conclusion?

    1. Anonymous says:

      I think “the madness of crowds” is apt!

    2. Anonymous says:

      Hi therrawbuzzin

      Yes I do and these factors amongst others are why I fear the next downturn as we are likely to be economically weaker than last time, or at least the 99.99% of us are.

      Actually I have just been reviewing a speech by Bank of England Deputy Governor Charlie Bean today and he fears it too.

      “this is eerily reminiscent of what happened in the run-up to the crisis.”

      What his period of tenure has lacked is if we quote the wife of the Deputy Prime Minister something called cojones (to act)

      1. therrawbuzzin says:

        I thought the absence of cojones, along with vertebrae, was a prerequisite for the position?

  2. Anonymous says:

    I applaud you for carrying on the good fight. I can honestly say I’m pretty bored of it now. The UK will *never* change because the people are the problem. The only people against house prices are those who wish they were on the inside track. Cameron spoke on R4 of a “deep instinct” to own a home. Rip it up and start again…

    1. Forbin says:

      I’m surprised you’ve not mentioned that increased house prices means the debt of banks is reduced – thus we are bailing out our Banks yet again.

      My local news is that yes people here would like to move but they are scared of the huge prices and the mountains of debt needed , forget about how much you’ve made – its what you have to borrow to get up the ladder

      now factor in getting onto the ladder and , well , the word madness comes to mind ….

      but this is the future 40 /50 year mortgages , generational ones ?? really ?? how does that work on bedsit flat ? going to raise 2 kids and 2 dogs ( or cats ) in one ?

      Dont worry you can pass it onto your kids ….. which one and who’s paying for the Granny care club ?

      see what I mean ?

      Take a look and sell up on the peak the move to Thailand ( not the cities – friends already commute and the country side is fine ( so far ) )

      Now Shaun , when will the peak be ? that will be useful to know

      I suspect its already 2015 but some events in the Oil market may well kick in as well ( echos of 2007/2008 )


    2. Anonymous says:

      Your own home, mortgage free is a fantastic thing. A rented property isn’t the same – does your landlord bother to keep it nice ? dry ? etc.

      There are strong vested interests who live well off rent collecting. The younger generations watch how their elders have become wealthy and some try to imitate that success. Both of these factors cause resistance to change, but the UK housing economics picture looks like a heated pressure cooker with a blocked relief valve. I’m sitting at a safe distance wondering if and or when it’s going to blow ….

      1. Anonymous says:

        I’d say it’s less of a pressure cooker more a polished turd!

        Tenants’ rights are another causal factor. But that’s a distraction – the UK establishment are pumping housing to stop the UK going under.

        1. Anonymous says:

          LOL. pumping up housing is like re-arranging deck chairs on the titanic.

          1. Anonymous says:

            It is, but the difference is all the people on the titanic wouldn’t have applauded the crew moving the deck-chairs around, they’d have been legging it off the ship. Not today’s Brits.

  3. Midge says:

    Hi Shaun
    Mark Carney concerned about house prices and Mario Draghi worried about disinflation but will either do anything about it until things get desperate.
    Asset price inflation in the UK and other places for that matter keeps rising.From houses, shares,paintings footballers but not gold.
    As you have said in the past Shaun everyone is looking for yield which isn’t available in government bonds or cash in bank accounts.
    Further disinflation in the near future in the UK looks almost certain.Input prices are falling and gas/electricity companies are freezing prices.This relies on GBP keeping strong of course.What could go wrong? I believe a very strong vote for UKIP next or a rise in support for a Yes vote in Scotland would bring uncertainty and a fall in the pound.

    1. Anonymous says:

      Disinflation is the one. Have a peep:

      Spot where the boomers stop taking out loans!

      Got my NS&I out, clearing out Lloyds this week. So long and thanks for all the fish.

  4. JW says:

    Hi Shaun
    Sorry just read your piece about Energy, BBC and EAU. Whenever these three appear together just bin it!
    Your summary is excellent, UK energy ‘policy’ is and has been for at least 25 years abysmal and incompetent. Prior to that , it was just inadequate. The UK appetite for nuclear power reflects its perceived need for material for weapons, that is why other potentially ‘better’ nuclear techniques were never funded adequately.
    We will live with the consequences of the fascism of ‘climate change’ for years to come, so many livelihoods now depend on it, and it forms the basis of ultimate taxation and control. Whoever would have thought that Scargill and Thatcher would have so much to answer for, for so long.

    1. Anonymous says:

      Hi JW

      Thank you, our energy policy has lacked any form of long-term planning for decades now and we are paying the price for it. The decision to close mines rather than mothball them was a clear mistake of the Thatcher era and so often gets forgotten! Even now her tenure is politically charged in a Marmite style fashion but the clearest bad decisions get little mention.

      1. therrawbuzzin says:

        Mothballing mines is not simple and very expensive.
        Probably no real saving from actually working them.

  5. just a thought says:

    Hi Shaun,

    What could go wrong….
    This guy Dmitry Orlov shares most of my perceptions…. (90 minutes interview…)

    1. Anonymous says:

      Hi Just a thought

      Thanks for the link.

  6. forbin says:

    hello shaun

    a late thought – if they measured house price inflation correctly then they’d have to do something about it…… so they dont

    the economy booms

    tax collection goes up

    election is won

    what ‘s not to love?


    1. Anonymous says:

      Hi Forbin

      The catch is the post-election hangover. However the basic price of your favourite snack looks the best performer (least inflation) of the ten commodities in the foodstuffs index,especially if we add in the fall in 2013.

      If only toffee popcorn hadn’t responded in perverse fashion to the falling price of corn!

  7. Anonymous says:

    Great analysis, Shaun. For now I think the best measure of inflation in the UK would be the RPIJ ex mortgage interest ex council tax series, which like the rest of the RPIJ detail, isn’t published. However the RPI ex mortgage interest ex council tax shows a 2.6% inflation rate, virtually unchanged although very slightly up, from last month. If one assumes a 0.7 percentage point difference created by the formula effect, the corresponding RPIJ inflation rate would be 1.9%. However, this series omits stamp duty, whose inclusion would almost certainly take the inflation rate above 2.0%. The CPIH rate of inflation of 1.6% is a joke, if it is intended to be a guide to the Bank of England, as Andy Haldane says it is.

    Both the RPI and the CPI series for holiday trips are corrupted by the strange variant of a seasonally weighted price index that they use. The 12-month rate of change for January 2014 means something. It is actually the annual average change for the series from 2012 to 2013 based on a February to January fiscal year. For other months, like April, it is basically a useless number that has no meaning of any kind.

    If one does look at the 12-month rates of change for January, holidays, while not having a big weight, have really helped the inflation rate come down recently. For foreign holidays, the inflation rate drops from 5.9% to 1.5% from January 2013 to January 2014. For UK holidays, the drop is even steeper, from 7.0% to 0.6%. It is a shame that this series has such a dysfunctional formula, as it corrupts any analysis of the trend in inflation in the UK. The 1986 RPI Advisory Committee report wanted to use the Rothwell formula to calculate the holidays index, the same formula used to calculate seasonal food groups in the RPI from 1975 to 2008. It is a great pity its recommendation was not followed in 1993 when holidays was introduced to the RPI in 1993. Anyway, it can still be done. Better late than never. Andrew Baldwin

    1. Anonymous says:

      Hi Andrew

      Thank you for the analysis of seasonal holiday patterns and I agree that it would be much more useful if all 12 months gave us useful information. As to CPI it was presented as a change to align us more with Europe, so we need to put house prices into CPIH to do the same. Except of course the UK establishment has done a u-turn because it would lead to a higher number!

  8. Anonymous says:

    They won’t raise rates of their own volition so when forced they may not have time to fudge this without making it really obvious. Which no doubt our MSM won’t pick up on.

  9. Anonymous says:

    Hi Laughing Gnome

    I am afraid it does not and even the UK ONS are rather defensive on the subject. Here is their explanation on CPIH.

    “OOH does not seek to capture increases in house prices. Although,
    this may be inconsistent with some users‟ expectations of measures of OOH…..”

    Here is what it uses.

    “CPIH uses an approach called rental equivalence to measure OOH. Rental equivalence uses the rent paid for an equivalent house as a proxy for the costs faced by an owner occupier. In other words this answers the question “how much would I have to pay in rent to live in a home like mine?” for an owner occupier.”

    There is a mortgage-rate element to the RPI (3% of it) but the version we targeted (RPIX) excluded it…

  10. Anonymous says:

    Laughing Gnome, you may be thinking of how the RPI’s OOH component was calculated from 1975 to 1995. The idea was only actual payments for homes were to be included, but downpayments and the equity portion of mortgage payments were to be excluded as investment outlays. It disappeared with the February 1995 update of the RPI, when a housing depreciation component was added. This represents imputed rather than actual expenditures, but it did give an important weight to changes in current house prices for the first time. The Irish still calculate the OOH component in their CPI largely based on mortgage interest; they have never added a deprecation component. Andrew Baldwin

  11. therrawbuzzin says:

    When forced, it’s not going to be pretty

  12. Anonymous says:

    Some things have a strange beauty to them. The boomer age is like the big bang. Nothing. Expansion. Contraction. Nothing. Symmetrical if nothing else…

  13. Laughing Gnome says:

    Thanks Andrew – I had no idea what I was ganching on about! I guess “depreciation” is rather about deterioration and maintenance rather than asset value.

  14. Laughing Gnome says:

    Thanks Shaun. I can see why a mortgage rate element would be excluded to prevent a feedback loop from action by the “authorities”. Outrageous i.m.o. that house prices are excluded from inflation figures; it makes it rather a cost of subsistence index. And yet I can remember when monetary measures were ramed down our throats on the news each month with absolutely no hint of how they arose. We didn’t know wether to laugh or cry :-)

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