Commodities: Investor interest shows signs of picking up in 2014

The withdrawals in commodity investments were mainly on account of liquidation of gold exchange traded funds (ETFs). After adjusting for gold etf outflows, commodity investments witnessed inflow of $2 bn.

Afer a weak year for commodities when a net $36 bn was withdrawn from commodity investments-the largest total ever, 2014 promises to be a better year with several promising signs of a pick-up in investor interest recently, according to Barclays Research.

The withdrawals in commodity investments were mainly on account of liquidation of gold exchange traded funds (ETFs). After adjusting for gold etf outflows, commodity investments witnessed inflow of $2 bn.

Moreover, several institutional investors made decisions last year to exit the sector but are not due to do so until early this year.

Firtly, structured product issuance in commodities has started the year in a spectacular fashion with the issuance of the largest ever-SEC-registered palladium linked note, with a notional value of $61 mn, bearing single-handedly th total of palladium notes during the whole of 2013.

Secondly, positioning data show that in a number of key growth-sensitive commodities hedge fund and institutional investors have raised their exposure to the long side, suggesting a more positive attitude to potential fundamental developments this year. With a net position of 35,000 lots managed money futures positions on COMEX are at their longest since early 2011 when prices were hitting all-time highs above $10,000/t. Although COMEX is a relatively small market, the big move up in LME open interest (up by more than 10% since late December and a long way above the levels prevailing this time last year) suggests that there may be similar trends underway there as well.

Thirdly, the mood at several events held by Barclays for commodity investor clients over the past week or so was decidedly more positive than it was just a month or so ago, especially toward the base metals complex with debates focusing on the similarities between the current situation (end of a strong period of supply growth, early stage of economic recovery) and those preceding previous periods of price strength in the middle of each of the past two decades.