Commodity ETF Inflow/Outflow: Investors Exit Ahead Of Debt Ceiling Debacle…

| October 14, 2013 | 0 Comments

inflow-outflowCommodity investors are in for one heck of a ride this week.

As I’m sure you’re aware, Washington DC politicians are pushing the US budget negotiations to the brink.  Not only is the US Government still shut down, but the Treasury Department will breach the national debt ceiling on Thursday.

As you’ll see, this potential catastrophe has many investors thinking twice about holding commodity-based ETF products (ETP) through the week.  As a whole, commodities ETPs were impaired by net outflows of $676 million for the week of October 11th.

Clearly, the looming debt-ceiling deadline has investors concerned.

Here’s a look at some of the top commodity-based ETF winners and losers for last week.

Leading Inflows:

Believe it or not, investors are still piling into gold mining stocks.  The Market Vectors Gold Miners Fund (GDX) added $52 million in capital for the week.  What’s more, the Direxion Gold Miners 3X Bull (NUGT) tacked on nearly $40 million.

With both GDX and NUGT trading near multi-year lows, investors are enamored with the inherent value in gold stocks.  For example, mid cap miners like Yamana Gold (AUY) and Eldorado Gold (EGO), along with a slew of others, are currently trading below book value. 

Investors also took kindly to the iPath S&P GSCI Total Return ETN (GSP) last week, allocating $22 million in capital.  As you may be aware, GSP is designed to track the GSCI index, which serves as a wide benchmark for the entire commodity complex.

Leading Outflows:

Here’s where it starts to get ugly…

The Energy Select SPDR (XLE) led commodity-based ETF losses with outflows of $159 million.  Investors are likely jumping at the opportunity to lock in profits in XLE as energy producing stocks have really been on a roll in 2013.

Close behind is the SPDR Gold Trust (GLD) with losses of just over $150 million.   As you’re likely aware, there is plenty of uncertainty surrounding the price of gold.  Very bullish catalysts for the yellow metal are arising, yet the price of the “safe-haven” metal has yet to budge.  

This underperformance has some analysts calling for another gold market wipeout.  When Washington politicians finally come to a debt ceiling agreement, we could see the yellow metal test the July 2013 lows at $1,200 an ounce.

Following in GLD’s footsteps is the iShares Silver Trust (SLV) with capital outflows of $42 million.  Much like its big brother gold, silver is trading amidst a sea of uncertainty.  The current stalemate in Washington should be pushing the metal higher.  The fact that it isn’t should be a warning to anyone bullish of silver.

Finally, the Market Vectors Oil Services (OIH) succumbed to outflows of nearly $50 million for the same reason as XLE.  Oil service stocks like Baker Hughes (BHI), Halliburton (HAL), and Schlumberger (SLB) are performing well in 2013.  Investors are wise to lock in profits in the face of this week’s headline driven market.

So there you have it…

Outflows outweighed inflows by a hefty margin last week as investors looked to this week’s potential debt ceiling disaster.

Now remember, the odds of the US defaulting on its debt are slim to none

It may come down to the wire, but Washington politicians will eventually come to an agreement.  The penalty for not doing so would be a global financial panic that would make the 2008 market collapse look like a game of Tiddlywinks.

Hopefully, our elected officials are smarter than that…

Until Next Time,

Justin Bennett

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Category: Commodity Trading

About the Author ()

Justin Bennett is the editor of Commodity ETF Alert, an investment advisory focused on profiting from the ebb and flow of important commodities via ETFs. The commodity veteran and options specialist is also a regular contributor to the Dynamic Wealth Report. Every week, Justin shares his thoughts with our readers on a variety of commodity-related topics. Justin is also a frequent contributor to Commodity Trading Research’s free daily e-letter. And he’s the editor of another highly successful and popular investment advisory, the Options Profit Pipeline.