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WisdomTree Investments sees strong interest in gold and oil

Based on the internal models used by WisdomTree the metal might be on course to top US$2,000 per ounce.

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Money has flowed into the gold ETF

Oil and gold have seen significant inflows into exchange traded products (ETPs) managed by ETP specialist WisdomTree over the past three months.

While gold has traditionally been a haven when markets run into choppy waters, the surge of money into oil is more surprising.

Nitesh Shah, a director of research at the Nasdaq-listed firm, says investors are betting heavily on a recovery in the oil price later in the year.

Crude prices dropped sharply when Saudi Arabia and Russia started a price war in March, with West Texas Intermediate at one point dropping down to US$20[1] per barrel for the first time in years.

The price is currently around US$25[2] with meetings between the countries to resolve the situation postponed due to coronavirus disruption.

Shah says WisdomTree’s oil products have seen heavy flows recently with more than US$700mln moving into West Texas Intermediate and US$240mln flowing into its Brent products[3].

This is contrary to the futures markets, he adds, where speculative positions on an oil price revival are low.

Gold, too, has attracted money and based on the internal models used by WisdomTree the metal might be on course to top US$2,000 per ounce.

Shah says WisdomTree has four main parameters to assess where gold is heading: interest rates; inflation expectations; the dollar exchange rate and speculative positions versus the metal.

 

He sees the huge stimulus packages announced by governments all over the world to counter the coronavirus disruption as key to the price over the next year.

According to WisdomTree’s internal models, if the result is a V-shape recovery i.e. economies such as the US bounce back within two quarters, gold might retreat a little to around US$1,350 an ounce from US$1,647[4] currently.

However, if any global recovery takes longer, such as four quarters of more, inflationary pressures can push the price of the metal above US$2,000 according to WisdomTree’s internal models says Shah.

WisdomTree’s physical gold ETPs gained US$250mln in the first quarter of 2020[5].

Even before, the impact of coronavirus, there was plenty of interest due to concern of the trade row between China and other global uncertainties such as Brexit.

Already known as one of the pioneers of smart-beta ETPs, Shah says WisdomTree has been moving into new areas such as bitcoin and thematics. Its latest launch, a battery metals exchange traded fund, aims to reflect the structural changes underway in the provision of the world’s energy.

These are megatrends says Shah and the new products reflect how the world might look in twenty years.

 

[1] Source: Bloomberg, as at 18/03/2020

[2] Source: Bloomberg, as at 09/04/2020

[3] Source: WisdomTree, as at 31/03/2020

[4] Source: Bloomberg, as at 09/04/2020

[5] Source: WisdomTree, as at 31/03/2020

Quick facts: WisdomTree Investments

Price: 4.17 USD

NASDAQ:WETF
Market: NASDAQ
Market Cap: $620.42 m
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