Last Updated : 01 May 2013 at 10:00 IST
Activity in Gold may determine stability in wider Commodity investment pic: Barclays
The question of course is whether this stability in the overall picture for commodity investments will continue? What happens in gold will go a long way to determining that.
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The flow of investments out of commodities slowed down sharply in March to a net $2.6bn from $4bn in February. The main reason for this slowdown was a halving in the value of funds withdrawn from precious metals ETPs to $2.6bn.
Inflows to commodity indices stayed positive but at just $200m, were a long way below the February total of $1.4bn, while there was a small pickup in commodity structured products, which saw $320m of new issuance.
The driving force behind outflows of commodity investments is the phase of rapid liquidation that has hit gold ETPs. Indeed, in light of this rapid liquidation, the stability in total commodity investment AUMs is notable.
At $409bn, the March total fell by just $1bn from the prior month with the modest inflow s into other commodity assets, plus some minor price appreciation, sufficient to offset the negative gold flows. March was the seventh successive month that commodity AUM has totalled over $400bn.
The question of course is whether this stability in the overall picture for commodity investments will continue? What happens in gold will go a long way to determining that. Although the data is not yet available to estimate April flows for all the sectors we cover, it is clear that gold liquidation has accelerated again.
Around 50t of gold ETP holdings were liquidated in March, but the rate of liquidation has picked up substantially again in April with almost 170t sold thus far.
Sales could continue at high levels. The 360t of gold sales from ETP so far this year equates to more than 50% of all the gold mined over the same period but is less than 15% of total gold held in ETPs and so unless investors regain their faith in gold soon, the prospects is for further heavy outflows to come.
Not all of the precious metals suffered net outflows in March, both platinum and silver recorded fresh interest. In tonnage terms, metal held in trust across both of these commodities hit record highs. Other markets did less well, however.
Industrial metals and energy sectors experienced small net outflows and only agriculture registered a net inflow.
The outlook for index investment flows is likely to hinge on a reduction in attractiveness of other asset classes, especially equities and an improvement in commodity returns.
With global growth still sluggish and central banks globally still focused on providing high levels of liquidity, conditions are not ideal for commodity performance to catch up and, for the time being, inflows to commodity investment s look set to remain weak, in Barclays' view.
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