Commodities Still Going Strong Despite Barclays Selloff

Source: Kitco, Cecylia Tulikowski-Denison  (5/26/11)

"The volatility in the commodity market has not deterred investors."

Kitco, Cecylia Tulikowski-Denison

The recent commodity selloff has not dampened the investment mood for these markets, particularly precious metals, one investment bank said Wednesday.

Investors have been flocking to commodities in various markets, according to a report by Barclays Capital. The volatility in the commodity market has not deterred investors, even amid the uncertainty arising from macroeconomic and geopolitical issues, investors' sentiment in commodity classes has remained positive.

Barclays analysts noted that "interest in commodities continues to grow, but investors are increasingly seeking more active exposure—a sign of how the asset class has matured over time."

Precious metals investment was highest in April, according to analysts, with inflows totaling $3.2B, the largest since June 2010, with a year-to-date total of $23B. Barclays suggested that precious metals, particularly gold, has remained a favorite among investors. It has not shown any market "skittishness" present in all other asset classes and continues to benefit from its safe haven status.

Base metals, on the other hand, have weakened, losing the momentum they had post QE2. Inflows totaled $0.6B in April, a reduction of $0.084B month-on-month and down almost $1.0B over the last year.

Another sector that saw marked improvement were exchange-traded products, the weak start at the beginning of the year was replaced with a consolidation in April reaching $1.7B of inflows into exchange-traded products. Inflows were seen predominantly into precious metals and were responsible for the largest portion of investment totaling $2.7B.

Investment outflows were primarily seen in the energy, agriculture and base metals sectors. The physically backed copper ETP was the only base metal to see some marked interest. It increased 898 metric tons over April and since then has further increased 25 tons to the current 3,277 tons. Analysts at Barclays attributed this to "a significant improvement in Chinese demand."
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