UPDATE 1-Exchange-traded commodity inflows surge

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By Christopher Johnson

LONDON Feb 4 (Reuters) - Exchange traded commodities (ETCs) saw strong inflows again last week, with $416 million moving into the market, adding to record-breaking inflows of $581 million the previous week, ETF Securities said on Wednesday.

ETCs are securities which track the value of an underlying instrument, such as gold XAU= or oil futures such as U.S. crude oil CLc1 and North Sea Brent crude LCOc1.

Total inflows in the first four weeks of this year were up $1.3 billion, with 57 percent of the money going into precious metals and 37 percent into energy, the company said.

"We have seen nearly $1 billion of inflows in just two weeks," said Nicholas Brooks, head of research at ETF Securities, which manages a range of ETCs.

"Most of the investment is going into gold and oil and we are also beginning to see flows into agricultural commodities. Investors are attracted by hard assets because they are worried about the financial volatility they can see, by the uncertainty over earnings."

ETCs replicate an underlying futures contract almost exactly, moving in tandem with the price and even allowing investors to take a yield on their capital through a collateral gain based on three-month U.S. Treasury bills and a roll-yield as the underlying futures roll forward.

HEDGE

Brooks said gold and oil ETCs were the key drivers behind the rising volume, although agriculture and other commodities had started to see increased interest.

Trading volumes surged to $1.1 billion last week, heading back towards levels not seen since July 2008.

Last week, demand for precious metals ETCs surged, with flows into Physical Gold (PHAU.L) and Gold Bullion Securities (GBSx.L) rising by $244 million. Assets under management in ETFS' physical gold ETCs now stand at nearly $6 billion.

"Gold is seen as a safe haven and also as a potential hedge against inflation, which many investors fear in the future," Brooks said.

Oil ETCs also saw very strong interest, ETF Securities said in a statement.

Combined flows into Crude Oil (CRUD.L) and Brent (OILB.L) rose by $101 million last week. This follows $143 million of inflows into long oil ETCs the previous week and brings total flows since the beginning of December to $730 million.

Platinum and palladium have also seen a turnaround in fortunes, with flows into Physical Platinum (PHPT.L) up sharply last week, rising by over $10 million, bringing total inflows this year to $23 million.

New flows into agriculture ETCs also rose last week, with total inflows up $10 million and flows into Wheat (WEAT.L) up $5 million alone. Total inflows into agriculture ETCs have risen by $80 million since the beginning of the year.

The company said increased interest in agriculture ETCs was probably being driven by the sector's historically low correlation to the business cycle and other asset class returns and the sector's generally favourable long term fundamentals. (Reporting by Christopher Johnson; editing by William Hardy)