Commodity ETFs Draw $5.4 Billion Behind Gold's Aggressive Rally

(Bloomberg) -- About $5.4 billion flowed into raw-material ETFs in June, the biggest influx in almost three years, as gold rallied to a six-year high.

Commodities generated the biggest monthly returns since January, with gold accounting for all but about $140 million of the inflows. The precious metal’s status as a haven investment soared after the U.S. Federal Reserve signaled a path toward lower interest rates, and the prolonged U.S.-China trade war threatened global growth.

Goldman Sachs Group Inc. predicts the Bloomberg Commodity Index will deliver returns of 5% over three months. Citigroup Inc. is bullish on both gold and oil, which it says is “on the cusp of a short-term bull run.” Energy-linked exchange-traded funds attracted $430 million in inflows, helping offset withdrawals from other commodities.

“Gold has shown what can happen when investors get off the sidelines in a ‘tightly coiled’ financial market,” Citigroup analysts including Edward Morse said in a report. “Any trigger of financial inflows could lead to higher prices in multiple markets – oil, platinum, silver, sugar or corn.”

Gold had struggled to climb above $1,350 after the Fed started raising interest rates in late 2015. It received a jolt recently when policy makers signaled their openness to cutting borrowing costs, propelling the price through that closely-watched technical level and sending it to the highest since 2013.

That rally awakened the bulls. By June 25, hedge funds and other large speculators were holding the biggest bullish bets on gold since September 2017. A record $1.6 billion was added to SPDR Gold Shares on June 21, helping push monthly inflows to commodity ETFs to the highest since mid-2016, according to data tracked by Bloomberg Intelligence.

With the push from gold, total assets in raw materials ETFs rose 12% from a month earlier, to $144 billion, according to data compiled by Bloomberg Intelligence.

Holdings in energy-linked ETFs rebounded to $7.4 billion in June, from $6.4 billion a month earlier, data show. Crude oil in New York posted its biggest monthly gain since January fueling the rebound in assets.

Prices have risen as the U.S.-Iran standoff raised fears of disruption at a time when stockpiles in the U.S. are seen declining.

Here’s how the rest of the commodity ETFs performed last month:

• About $140 million was pulled from funds linked to industrial metals, even as the Bloomberg Industrial Metals Subindex Total Return rose 2%
• Investors pulled $350 million from funds linked to baskets of raw materials, a 12th straight monthly net-outflow
• The energy ETFs were boosted by a $200 million inflow to VelocityShares 3x Long Natural Gas ETN. U.S. Oil Fund, the largest in the sector, attracted $17 million

To contact the reporters on this story: Marvin G. Perez in New York at mperez71@bloomberg.net;Justina Vasquez in New York at jvasquez57@bloomberg.net

To contact the editors responsible for this story: Luzi Ann Javier at ljavier@bloomberg.net, Reg Gale

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