The third quarter was good for commodity exchange traded products – both in terms of performance and flows. Rising investor risk appetite on the back of proactive moves by the world’s major central banks to increase liquidity and improving US economic data led to rise in most key commodity benchmarks and caused investors to increase allocations to commodities as an asset class.
The expectation of further asset purchases by developed economy central banks, however, also increased investor fears of potential further currency debasement, driving the largest inflows into gold ETPs since 2Q 2010 when the extent of Greece’s problems first became apparent.
Looking into the fourth quarter and on to 2013 there are four key issues that will likely determine performance and flow outlook for commodities as an asset class. The first is when Spain finally capitulates and accepts a bailout. [Obama Victory Seen Bullish for Gold ETFs]
If and when Spain does, it will likely further improve risk appetite and boost commodity performance and flows. The US fiscal cliff is another hurdle that will need to be dealt with. A successful resolution (or at least postponement) would likely further boost sentiment.
Whether the US can sustain its modest recovery in growth and employment and whether China will be successful in turning its economy around are the final two key factors that will likely determine the outlook for the rest of this year and early 2013.
ETFS Physical Swiss Gold Shares (NYSEArca: SGOL)