Gold rules 2012 U.S. commodity ETF money with Spyder and iShares

Wed Jan 23, 2013 1:40pm EST

* US monetary easing, economy fuel rush into gold ETFs

* Spyder attracts $5.3 bln net, iShares $2.4 bln

* Lipper universe of U.S. commods products see $11 bln inflow

* PIMCO's institutional commodity fund bleeds most money

By Barani Krishnan

Jan 23 (Reuters) - Gold dominated the money that flowed into U.S. commodity exchange-traded funds last year, with 70 percent of investments going into just two funds, after a new round of stimulus in the world's largest economy, Thomson Reuters data showed.

SPDR Gold Trust, also known as Spyder Gold, saw the biggest net inflow of $5.3 billion in 2012, according to data by Lipper, a Thomson Reuters company. BlackRock's iShares Gold drew the second largest net amount of $2.4 billion.

The combined haul of nearly $8 billion by the two gold ETFs compared with the $11 billion in total investment netted by 220 commodity ETFs, mutual funds and products tracked by Lipper.

GOLD'S YEAR

"Quite simply, it was gold's year," said Lipper analyst Matthew Lemieux, who compiled the data.

He said a lot of it came near the end of the year with increased interest in Spyder and iShares "after concerns about the U.S. fiscal crisis and the dollar's erosion from monetary easing."

Gold prices rallied for a 12th consecutive year in 2012. Some analysts, however, say the run may be ending and have lowered price forecasts due to an improving economy.

Spot gold was hovering around $1,687 an ounce in Wednesday's trading.

The Lipper data showed U.S. bond manager PIMCO's institutional investors fund led outflows, losing $2.4 billion, as investors favored specialty ETFs over big macro-type commodity funds.

ETFs give investors the option to own physical commodities they cannot buy or hoard in large quantity.

Spyder's bullion holdings, standing at more than 1,335 tonnes, are the largest held by any ETF. The gold is worth about $73 billion and is stored in bank vaults. Bullion holdings by iShares amount to nearly 220 tonnes, worth almost $12 billion.

Other exchange-traded funds and products in gold include ETFS Swiss Gold, ETFS Asian Gold, Powershares DB Gold, UBS Gold ETN and RBS Gold ETN. None are of the size of Sypder or iShares.

ETFs of other precious metals like platinum and palladium have drawn just a fraction of the money in gold funds.

London-based ETF Securities' U.S. Physical Platinum Shares saw $100 million in net inflows last year after a 10 percent rise in the spot price of platinum.

Spyder and iShares pulled in billions of dollars, while the spot price of bullion rose just 7 percent. Shares of the two ETFs also rose 7 percent, mirroring the gains in gold. Final returns for investors are determined by offsetting management fees and brokerage costs in the ETFs.

Spyder and iShares have been on a roll since August when bullion prices began climbing on expectations that the U.S. Federal Reserve would initiate a third round of quantitative easing (QE3) to boost economic recovery. Fed easings weaken the dollar, compelling investors to find a better store of value, and gold has emerged as the favorite alternative.

As widely expected, the Fed launched a QE3, promising to buy $45 billion worth of U.S. Treasury bonds and $40 billion of mortgage-backed securities per month. Fears of an U.S. fiscal crisis through December added to investors' worries, pushing them deeper into gold ETFs.

PAULSON, SOROS AMONG SYPDER OWNERS

Prominent hedge fund managers John Paulson and George Soros are among the biggest stake holders in Spyder Gold.

Paulson's fund, Paulson & Co, owned 21.8 million shares in the ETF at the end of September. Soros raised his shares in the ETF by a half in the third quarter.

While activity in gold ETFs almost perfectly match the underlying price of gold, such correlation is not always present in other commodity offerings.

The United States Oil Fund ETF saw a positive flow of $218 million in 2012 after U.S. crude oil prices fell 7 percent. In 2011, it had a net outflow of $651 million while crude prices rose 8 percent.

Coffee is another example. Prices of arabica, the premium coffee grade, fell 35 percent last year, the worst among commodities. But an iPath exchange-traded product that tracks coffee had a net inflow of nearly $60 million.

"People have come to regard Spyder as the gold standard for bullion ETFs and that's why the action there is almost mirror the action you find in the physical gold market," said Richard Kang, a former ETF consultant who is now Chief Investment Officer at New York's Emerging Global Advisers.

"Another thing is that gold is gold. It's not like oil where there are different crude grades and products. Also with crops such as coffee, you may have quality issues, so you can't really relate an ETF per se to those commodities," Kang said.

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