Despite price gains across a range of commodities last week, commodity investors remain cautious. In fact last week saw the largest ever inflows into ETF Securities short gold ETP (SBUL), with $48mn of net new inflows.

Other of ETF Securities’ range of short commodity ETPs have also seen large inflows, with ETFS Daily Short Copper (SCOP) seeing $37mn of inflows last week alone. While investors remain bearish, there are increasing signs that a commodity price turnaround may lie ahead.

China and US growth data last week indicate the world’s two largest economies are in recovery mode. Last week the Reserve Bank of Australia, as well as downgrading its inflation forecast (indicating further scope for easing), said that it believes that mining investment is near its peak, pointing to a potential contraction in the excess supply that is currently weighing on some industrial commodities.

While USD strength may keep downward pressure on some commodities in the near-term, if the US and China growth recovery continues and recent indications of tightening supply across a number of key cyclical metals such as copper, platinum and palladium comes through, commodity prices may surprise investors with the strength of their recovery later this year.

Record inflows into ETF Securities short gold ETP. Outflows from long gold ETPs continued last week, with US$125mn of outflows.  The outflows from ETPs are in sharp contrast to the surging demand in the physical market. Some ETP investors have become even more aggressive, with US$48mn going into ETFS Daily Short Gold (SBUL) last week, marking the highest weekly inflows on record. Inflows into ETFS Daily Short Silver (SSIL) rose to the highest level since March 2012. Despite the apparent bearishness of investors, demand from the physical market remains strong. In India, the upcoming Akshaya Tritiya festival is prompting further physical buying, while premiums on and sales volumes of physical gold in major global markets remain elevated.

Next page: Copper, corn ETFs and events to watch this week

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