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.”