Investors desert commodities for bonds - BlackRock

* Precious metals outflows total $1.5 bln as gold sells off
* Investors switch to fixed income ETPs for safe haven
* Energy ETPs lose $356 mln as economic growth slows

By Claire Milhench
LONDON, June 12 (Reuters) - Outflows from commodity exchange
traded products (ETPs) nearly tripled in May as investors piled
record amounts of money into safe-haven government bond ETPs in
response to a deteriorating outlook for the global economy.
Investors pulled some $2.9 billion from U.S. and
Europe-listed commodity ETPs last month, after withdrawing
nearly $1 billion in April, data from asset manager BlackRock
showed. Some $1.5 billion of the May outflows came from
precious metals ETPs.
The aversion to commodities, which has continued into June,
is a big shift from March, when commodity ETPs had attracted
$814 million in inflows.
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 move out of precious metals was unusual given their
previous safe-haven status, but a sharp fall in the gold price
was partly to blame. The S&P GSCI Gold index ended the month
down 9.45 percent after gold tumbled from $1,664.75 at
the start of May to $1,558.70 at the close.
"May was a volatile month for gold as it took its lead from
the euro/dollar cross rate while safe-haven flows went in to
core government bonds," said Steve Cohen, head of investment
strategies in EMEA for BlackRock's iShares.
Government bond ETPs attracted record-breaking inflows of
$5.6 billion, with some $4.4 billion going into U.S. Treasury
bond products, BlackRock data showed.
"In May investors were moving into hibernation mode - they
were selling everything apart from (government) bonds and cash,"
said Nicholas Brooks, head of research and investment strategies
at ETF Securities, an issuer of ETPs.
He added that the gold price is likely to be buffeted in the
near-term by the conflicting forces of U.S. dollar strength and
concerns about the potential break-up of the euro.
Cohen said that the outflows from ETPs coincided with a
major unwind in gold speculative positions. "With the weak
economic data in the U.S. and the intensification of the euro
crisis, we see the main short-term driver of gold to be
expectations for central bank action."
Guy Wolf, macro strategist at Marex Spectron, said that gold
had evolved into a proxy for quantitative easing over the last
six months and indications from the U.S. Federal Reserve that
there would be no further monetary stimulus had removed some of
this support. "The speculators are pretty short gold now."
However, bargain hunters and investors wanting to hedge
their euro-risk have flocked back to gold in June, according to
data from ETF Securities.
Its own gold exchange traded commodities attracted some $206
million of inflows in the week to June 7. This is their second
biggest weekly inflow since December 2011.

ECONOMY WORRIES HIT ENERGY
The most economically-sensitive commodities took a hammering
in May after China's industrial output, retail sales and
investment data came in lower than expected. The eurozone crisis
also intensified in May due to Spain's ballooning debt problems
and increased chances of a disorderly Greek exit from the euro.
Energy ETPs had outflows of $356 million according to
BlackRock data, and industrial metals lost $115 million.
Cohen said that some 96 percent of the energy sector
movement could be explained by changes in the oil price. Brent
crude oil futures fell over 14 percent in May to end the
month at $101.87 a barrel, which Cohen attributed to concerns
about economic growth in the United States and China.
Standard & Poor's noted that energy acted as the biggest
drag on S&P GSCI index returns in May with the S&P GSCI Energy
index down 15.3 pct.
Wolf said that crude oil and refined products had had the
largest long exposure in the commodities complex at the end of
the first quarter and so had been most vulnerable to a sell off.
"Now people are starting to build short positions but there
is probably more downside in the near term," he said.
ETF Securities said that its ETFS Short Petroleum and ETFS
Short Industrial Metals products had seen inflows of $9 million
and $7 million respectively in the week to June 7. This suggests
some asset allocators take the view that broad cyclical
commodity sectors have further to fall, Brooks said.
Wolf also expects the aversion to commodities to continue
for the time being, given the uncertain outlook for Europe. "I
don't see what could turn the tide in the short term," he said.
"How long will the ECB (European Central Bank) be prepared to
supply three-year funding to banks that are technically
bankrupt?"
At the end of May, BlackRock's data covered 833 commodity
ETPs, worth some $173 billion. The global figures in the table
below combine BlackRock's numbers for U.S. and Europe-listed
products and exclude other regions.
Some $23.82 billion was invested in commodity ETPs on the
ETF Securities platform at the end of May.

(Reporting by Claire Milhench. Editing by Jane Merriman)