September 13, 2012 / 2:30 PM / 5 years ago

Investors flock to gold ETPs in August on stimulus hopes

* Commodity ETPs attract $4.2 bln in August-BlackRock
    * Precious metals ETPs back in favour
    * Agriculture ETPs attract net inflows of $98 mln

    By Claire Milhench
    LONDON, Sept 13 (Reuters) - Investors shovelled $3.6 billion
into gold exchange-traded products (ETPs) in August, according
to BlackRock data, on rising expectations that the U.S.
Federal Reserve will undertake another round of monetary
stimulus.
    Precious metals ETPs attracted some $3.8 billion globally,
reversing July's trend when the segment saw $586 million of net
outflows. BlackRock said investors thought it increasingly
likely that central banks would embark on more inflationary
measures to kick-start sluggish Western economies. 
    ETPs, an easy route into commodities for investors, include
exchange-traded funds, exchange-traded commodities and
exchange-traded notes. All trade on a stock exchange and their
value is linked to the underlying assets.
    The strong inflows into physical gold ETPs have continued
into September after Federal Reserve Chairman Ben Bernanke's
hotly anticipated Jackson Hole speech kept the door open for
"QE3" and Mario Draghi, president of the European Central Bank,
announced further bond buying.
    "Bernanke made it very clear the Fed would consider moving
ahead aggressively with further quantitative easing if U.S.
employment numbers didn't start to improve," said Nicholas
Brooks, head of research and investment strategies at ETF
Securities, an issuer of ETPs. "And most investors look to gold
as one of the primary beneficiaries of this."
    Lipper said on Wednesday that the world's largest
exchange-traded fund for gold, SPDR Gold Shares, attracted
an inflow of nearly $2 billion in August after a $1.4 billion
outflow in July. 
    BlackRock noted that global ETP gold holdings now stand at
2,485 tonnes, recently surpassing holdings by Italy's central
bank. "ETP gold holdings are the fourth-largest behind central
banks in the U.S., Germany, and the IMF," it said.
    Dodd Kittsley, global head of ETP research at BlackRock,
said that gold had recently proved an effective diversifier for
balanced portfolios with a low correlation to the S&P 500.
    Gold prices rallied in August, closing the month up
5.7 percent, whilst the S&P GSCI Precious Metals index was up
5.55 percent, boosted by a 12.32 percent rise in silver.
    Platinum ETP flows were also strong, Brooks said, due to
concerns about supply disruptions in South Africa, which
accounts for about 80 percent of global platinum production.
    
    CYCLICALS ATTRACT
    Broad commodity ETPs, which give exposure to a diversified
basket of commodities, also continued to attract inflows, with
some $333.50 million in August, after July's $265 million.
    "The modest inflows that we have seen in July and August may
indicate investors warming to the category and reflective of a
more risk-on environment," said Kittsley.
    Brooks said investors had become more bullish about certain
cyclical assets after Draghi said the ECB would purchase Spanish
and Italian debt, ending some of the eurozone uncertainty and
boosting sentiment.
    Energy ETPs saw modest net outflows of $14.4 million.
Investors in oil ETPs tend to sell if prices have moved up, and
Brent crude oil futures rose by 9.74 percent in August.
    Oil prices rallied as refinery disruptions helped to lift
the oil products complex. This encouraged operational refineries
to buy crude and keep pumping as hard as they could. 
    Kittsley noted that energy commodity ETPs have attracted
$1.1 billion in the year-to-date as some investors have
positioned around higher oil prices and more accommodative
monetary policy.
    He added that energy equity ETPs attracted $527 million in
net inflows for August. This makes them the equity sector with
the largest flows year-to-date globally, taking in slightly more
than $4.4 billion.  
    Agriculture ETPs finally attracted some inflows with $97.9
million in August after 18 months of fairly solid outflows.
Long-standing investors had been cashing in after a run up in
grains prices in recent months. 
    Brooks suggested some investors wanted to hedge against
further price rises as drought continues to impact crops in
Russia, Ukraine and Australia, but added that others remain on
the sidelines, waiting for a correction.
    "A lot of investors see the price rises as very substantial
and think that most of the drought news is now factored in." 
    S&P noted that the drought-ravaged grains complex took a
breather in August, with the S&P GSCI Grain index up just 0.37
percent on the month. Year to date it is up 36.14 percent.
    At the end of August, BlackRock's data covered 901 commodity
ETPs, worth some $192.1 billion.

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