London, 14 September 2011

Precious metal ETPs have traditionally accounted for a large portion of investor exposure to commodities, representing about one-third of total commodity AUM, according to Barclays Capital. As of end-July, $142bn of the total $431bn total commodity AUM was invested in precious metal ETPs. Traditionally, periods of high distress and macroeconomic risks saw large inflows into these types of products, which are seen by investors as a financial hedge and safe haven.

"Since 2008, every new outbreak of financial markets risk saw large inflows into precious metal ETPs. Late 2008, Q1 2009 and Q2 2010, for instance, saw some of the largest ever inflows into these products. Last year, roughly $18bn out of the $20bn inflow into ETPs went into precious metals. However, so far this year, despite the sheer number of potentially damaging risks affecting the economy, commodity-linked ETPs (particularly precious metal) have seen weak inflows," says Roxanna Mohammadian-Molina, commodity analyst with BarCap.

"In the year to the end of July, commodity ETPs received $7.8bn of inflows, down from $11bn over the same period last year and $31bn over the same period in 2009. Inflows into precious metal-linked ETPs have shrunk by two-thirds so far this year compared to last year over the same period.

"In fact, this year has seen some of the largest ever monthly outflows from precious metal ETPs, in January, in May and most recently in August. This picture across the – mainly retail investor-driven – ETP market contrasts with the rising official sector appetite for gold (the bulk of precious metal ETPs is linked to gold), the healthy demand for physical gold and the increase in net long positions in the futures markets."

Precious metal ETPs are not the only category to see weakness this year according to BarCap analysis: agriculture ETPs saw their fifth consecutive monthly outflow in August, a cumulative outflow of $1.7bn since April and the largest since 2008. This outflow contrasts with some strong fundamentally-driven price gains across the sector since May (Sugar 35%, soybeans 4.1%, coffee 3.4%, and corn 1.7%).

Base metal ETPs suffered their largest ever monthly outflow in August, taking the cumulative outflow over the past four months to $560mn. Even energy ETPs have not been spared and have seen almost $2bn of outflows over the past five months.

"The popularity of precious metal ETPs during the period 2008-2010 has certainly weakened since the start of this year, but it is still very early stages to identify any clear lasting trend," said Roxanna Mohammadian-Molina.

Ends --