Investors continue to dump commodity ETPs in May: BlackRock

LONDON (Reuters) - A stronger dollar and weaker inflation expectations prompted further redemptions from commodity exchange traded products (ETPs) by investors in May, although the pace slowed from April's record outflows.

ETPs, whose value is linked to moves in their underlying assets, are seen as an easy route into commodities.

Commodity ETPs lost $6.3 billion last month according to data from BlackRock, compared with an unprecedented $9.3 billion in April. This was largely due to a reduction in outflows from gold ETPs, which totaled $5.7 billion in May, compared with $8.7 billion in April.

Dodd Kittsley, global head of ETP research at BlackRock, said that trend was continuing.

"In the first four trading days of June, we have seen $374 million of outflows from global gold ETPs," Kittsley said. "However, gold continues to face headwinds as investor inflation expectations continue to ease."

A strong U.S. dollar is also weighing on commodities as this makes commodities priced in dollars more expensive for buyers using other currencies. In mid-May, the dollar hit its highest level since July 2010 against a basket of currencies.

May was the fifth straight month of outflows of over $1 billion from gold ETPs, putting the year-to-date total at $23.9 billion, BlackRock said. Total global assets in gold ETPs shrank to $96.2 billion, a decrease of 32 percent from the $141.2 billion at end-2012.

BlackRock partly attributed the continued outflows to the weakness in gold spot prices, which are down 17 percent in the year-to-date and down about 27 percent from the record high of just over $1,900 per ounce reached in September 2011.

It also cited the growing belief that monetary easing from the U.S. Federal Reserve may end in the near term, which could herald a rise in interest rates.


Investors pulled more money from broad commodity ETPs. Some $333 million flowed out of the segment in May, the majority before May 9.

Investors are showing more appetite for riskier U.S. equity sectors, but appetite for growth-oriented commodity segments remains tepid.

Industrial metals ETPs managed to attract just $28 million in May, but that was an improvement from outflows of $113 million in April. Energy ETPs suffered outflows of $48 million.

Ole Hansen, head of commodity strategy at Saxo Bank, said that "cyclical" commodities, which rely on growth to spur demand, were hit after Chinese manufacturing data pointed to continued weakness.

"This once again (stimulated) talk of whether the super cycle ... which primarily was driven by rising demand from growth in emerging economies, especially China, was coming to an end," he said.

Oil ETPs came under pressure after U.S. inventory levels rose to near their highest level since 1931. Analysts at S&P also highlighted weak U.S. consumer spending data and high euro zone unemployment figures.

At the end of May, BlackRock's data covered 926 commodity ETPs worldwide, worth some $148 billion.

(Reporting by Claire Milhench; Editing by Elaine Hardcastle)