Commodity Online
LONDON: Net flows into ETF Securities' physically-backed precious metals Exchange Traded Commodities (ETCs) surged over 400% in 1Q 2009 compared to 4Q 2008, the most rapid pace of growth on record, bringing total precious metals holdings to a new high of $6.8bn.

Physically-backed gold ETCs saw the largest flows, with total ounces held by ETFS Physical Gold (PHAU) and Gold Bullion Securities (GBS) rising by 1.3mn ounces ($1.1bn) to 7.4mn oz ($6.5bn). Inflows during 1Q09 increased at 3.7 times the pace of inflows during 4Q08 - the largest quarterly increase on record. ETF Securities' gold ETCs now hold more gold than any other gold ETF/ETC inEurope, and the second largest in the world. During the quarter the gold price initially surged through $1000 per ounce, before falling back as investor risk appetite increased, ending the quarter up 5.9% in USD terms, 8.0% in GBP, 11.7% in EUR.

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There has been a surge in demand for physically-backed gold ETCs since the third quarter of 2008 as investors have become increasingly concerned about the financial and economic outlook. Rising government fiscal deficits and debt, together with recent moves by major central banks to commence quantitative easing has raised investors' concerns about the long-term inflation outlook and the potential for competitive currency devaluations. Gold and other hard assets have often been one of the most effective ways for investors to preserve wealth in this kind of environment.

For similar reasons, ETFS Physical Silver (PHAG) saw inflows accelerate rapidly in 1Q09, rising by 4.8 times the pace of inflows in 4Q08. Historically the silver price has often acted as a leveraged play on the gold price, having a high correlation with the gold price due to its safe haven properties, but having a much higher volatility. Total silver holdings increased by $3.0mn oz in 1Q09, rising to 17.3mn oz, equivalent to $212mn at the current price. Silver was one of the best performing commodities in 1Q09, rising by 22% over the period.

Flows into ETFS Physical Platinum (PHPT) grew at the fastest pace during the quarter, with total platinum holdings rising 82% compared to end-2008 levels. Total platinum holdings stood at 309,930 oz at the end of 1Q09, equivalent to $372mn at current prices. The platinum price surged 25% in the first three months of the year, the strongest performer among the precious metals, benefiting from its safe haven status as a precious metal as well as from improved sentiment towards commodities with industrial applications.

ETFS Physical Palladium (PHPD) also saw inflows surge during the quarter with total palladium holdings rising 48% compared to end 2008 levels. Total palladium holdings at the end of 1Q09 stood at 251,939 oz, $59mn at current prices. The palladium price rose by 17% during the quarter.

ETFS Physical PM Basket (PHPM), which is backed by a basket of allocated precious metals (with a weighting of 43% gold, 25% silver, 20% platinum and 12% palladium), saw total holdings in 1Q09 rise by 33.7% compared to the end of last year, as investors sought exposure to a diversified basket of precious metals. PHPM performed strongly during the quarter, rising by 12.7%, its largest quarterly increase since 1Q08.

There has been strong demand for physical metal ETCs because they are backed 100% by allocated metal in a vault. In addition, high liquidity, ease of access, no premiums due to shortages (as has been seen for coins and bars in many instances), and of course their safety and ease of storage.

ETF Securities' physically backed precious metals ETCs are all backed by "allocated" bullion - uniquely identifiable bars which carry no bank credit risk. The precious metal bars are held by the Custodian HSBC Bank USA N.A., the world's leading Custodian for ETCs. The metal held with the Custodian must conform to the rules for Good Delivery of the London Bullion Market Association (LBMA).

Securities are only issued once metal is confirmed as being deposited into each Issuer's bullion account with the Custodian. Consistent with allocated bullion, no precious metal is borrowed, loaned out nor does it earn any income. Last year, ETF Securities obtained Sharia compliance, and the related certificate, for its physically backed precious metals platform issued by ETFS Metal Securities Limited.

ETF Securities now offers more than 130 ETCs with over $10 billion in assets. The ETCs provide investors with a wide variety of investment strategies, with ETCs offering physical, long, forward, leveraged and short exposure to all commodity sectors. ETCs are simple to access as they are traded in four currencies (EUR, USD, GBP and AUD) and listed on six major exchanges globally including the London Stock Exchange, NYSE-Euronext Paris, NYSE-Euronext Amsterdam, Deutsche Börse, Borsa Italiana and the Australian Securities Exchange.

Nicholas Brooks, Head of Research and Investment Strategy at ETF Securities commented: "The surge of inflows into physically-backed precious metals ETCs in the first quarter is unprecedented and reflects investors' concerns about current highly uncertain economic and financial conditions. Credit and counterparty risk are now major issues for most investors and the security of holding liquid investments that are fully backed by allocated precious metals is a major factor driving these flows. With major central banks aggressively expanding the money supply through quantitative easing and government fiscal deficits and debt rising at an extremely rapid pace, investors are looking for assets that will hold their value if currencies depreciate or there is a sharp rise in inflation. ETFS Physical Gold and Gold Bullion Securities have seen record quarterly inflows, but our physically-backed silver, platinum and palladium ETCs have also seen substantial inflows."