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Brexit dominated ETP flows last Friday

Investors frantically purchase Gold ETPs after Britain delivered a shock vote to leave the European Union with inflows of US$201m on Friday alone. US$180mn redemption in Short GBP ETPs following the vote. Long crude oil ETPs experienced limited outflows, whilst oil prices settled 5% lower on Friday.

Total outflows into Gold ETPs for the week totalled US$62m highlighting the relief rally at the beginning of the week leading to Gold outflows. However, after the shock Brexit vote investors reversed their positions and purchased safe haven assets with inflows into gold ETPs totalling US$201m for Friday alone.

The gold price gained 4.2% on Friday to around US$1,316 per troy ounce, after Britain delivered a shock vote to leave the European Union, sending investors scurrying for protection in bullion and other assets perceived as lower risk. Other precious metals such as silver and platinum gained 4.3% and 2.5%, respectively on Friday. Prior to the vote, precious metals only received a total US$47mn as investors saw the odds for a Brexit as low. We believe that risk-off sentiment will persist until a clear withdrawal plan from the European Union is set out.

Long crude oil saw outflows of US$7.1mn. Oil prices settled 5% lower after Britain’s vote to leave the European Union spurred massive risk aversion. The losses were much smaller for the week as a whole, with Brent down 1.5%and U.S. crude 0.7%. Investors paid little heed to data on Friday showing the US oil rig count fell by seven last week, the first weekly reduction in 4 weeks. We see the Brent fair value of US$55 per barrel at the year-end 2016, reflecting the 75th percentile of the crude production cost-curve, where supply-demand responses occur.

Last Friday Short GBP ETPs saw about US$180mn after Britain’s vote to leave the European Union. The British Pound fell 8.05% against US dollar to 1.368 while it fell 5.75% against Euro to 1.232 on Friday. Investors cut short GBP ETP positions at fastest rate in nearly two years. During the week, investors withdrew US$25.4mn from short GBP ETPs. Meanwhile, the EU referendum decision also prompted USD outflows, as the chances for a US rate hike declined. Outflows from Long US Dollar ETPs totalled US$25.2mn, the largest in 12 months.

Key events to watch this week. Investors will be waiting for the “Leave” campaign to provide a framework on UK withdrawal from the EU. On the other hand, the debate over the “Brexit” vote and the possibility of a second referendum could continue to fuel market uncertainty. Also this week, the Eurozone countries will publish consumer confidence index as well as a series of CPI inflation data.

Morgane Delledonne , June 29

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