Safe haven inflows to oil and gold
New York (Aug 29) Prices may have oscillated of late, but ETF Securities' latest commodity report shows that investors have been building exposure to gold and crude oil in response to geopolitical events. The derivative specialist has now recorded six consecutive weeks of capital inflows to funds covering long positions on these commodities.
With Islamists running amok across Iraq and Syria and Russian energy exports threatened by sanctions, it’s unsurprising that Brent crude contracts have attracted the lion’s share of interest, as demonstrated by 11 consecutive weeks of inflows. But exposure to WTI (West Texas Intermediate) contracts has also accelerated on the back of a forecast pick-up in global demand, combined with a greater-than-expected fall in US crude inventories.
There are conflicting signals at play in the gold market. Historically, gold tends to outperform crude oil during periods of share price volatility - a bit like the behaviour of Vix indexes. The trouble is that appetite for US equities remains strong despite the worsening global security situation. Then there’s the spectre of a US rate rise to factor. Published minutes from the Federal Reserve meeting in July revealed that policy strategists had debated whether they should raise interest rates earlier due to a recovery in the job market. All of this has - theoretically - weighed on the gold price, which hit a two-month low earlier this week. How then do we square the fact that long gold ETPs (exchange traded products) have seen their longest stretch of consecutive positive flows since October 2012? Well, a school of thought exists, which downplays the perceived historical link between gold prices and interest rates. In fact, some argue that rising rates help to stimulate investment in alternative assets like gold by drawing out capital from over-cooked equity markets.