Investors are returning to ‘unloved’ commodities

According to data from Morningstar, quarterly outflows from commodities and precious metals ETFs peaked earlier this year at just over $100 million, before moderating in subsequent quarters. In July, outflows from the ETF category had slowed to $10 million.

July ETF flows data from the ASX showed that among the dozen of commodity ETFs available on the exchange, Global X’s Physical Gold ETF charted the largest inflows, at $17.5 million, while BetaShares Crude Oil Index ETF-Currency Hedged recorded the largest outflows at $19 million.

More recently, weekly data from ETF provider Global X showed physical silver, platinum and uranium were among the strongest performing over the seven days to August 28, charting up between 5.5 per cent and 6.5 per cent total return.

Despite recording net inflows in July, year-to-date outflows for the Global X Physical Gold ETF remain high, at $94 million as of last week. The outflows follow a strong season of profit-taking since the spot price for gold hit its 52-week high in early April.

A recent report from ANZ commodity strategists Soni Kumari and Daniel Hynes said the macroeconomic outlook for gold remained uncertain after the US Federal Reserve left the door open for another interest rate increase.

“We expect shifting expectations around its terminal rate could cap the upside in the near term. Investment demand is lacklustre, as investors wait for the Fed to end its tightening cycle,” they said.

“Platinum group metal prices are likely to recover after a recent price correction. However, platinum holds more upside due to a favourable supply demand backdrop, while palladium continues to be affected by a structural downtrend in auto catalyst demand.”

While flows may be returning to commodities, Ms Stats pointed out that fixed-income ETFs had the most notable inflows year-to-date, worth about $US76 billion ($117.2 billion) across iShares’ global products since the start of the year. That compares to around $US40 billion of global inflows into its equities ETFs.

“Investor sentiment has been pretty fickle. We were still seeing net inflows but not as much as during the spike in March,” she said.

“While in July, we saw very little inflows into equities, which could be seasonal, and another bit of a spike in fixed income.”

Ms Stats attributed some of the recent fixed-income inflows to the “higher-for-longer” interest rate narrative around global inflation levels taking hold of investors.