No prize for guessing that this is a trick question because the cost of the coal mines is more than 10 times the investment fund inflow and most sensible people would nominate the mines.

Hogsback has a different view, because while new mines are important, the investment fund news has the potential to significantly alter the shape of the worldwide coal industry.

The fund in question is probably one you’ve never heard of before. Hogsback certainly hadn’t until sipping his morning cuppa while perusing London’s Financial Times newspaper.

Under the heading “Coal ETFs burn bright” was a report that the exchange-traded fund (ETF) investment phenomena had finally started to make inroads into the coal industry.

A mob called Market Vectors operates an ETF which trades in the US under the code KOL.

In the first three months of this year the amount of money flowing into KOL rose by 70%, or the $254 million mentioned earlier.

In total, the KOL fund now has $900 million in its coffers, with that money being provided mainly by professional and institutional investors, and directed into buying positions in coal-related businesses such as equipment makers, railways and not much, yet, into physical coal.

That will change, and as the ETF invasion of the coal industry gathers pace expect to see a rising tide of funds and an increasing preference for buying physical coal, perhaps as a genuine investment, but more likely as a speculative punt on the future direction of the coal price.

Other commodities have already seen the shape of their markets revolutionised by ETF activity – for better or for worse, as The Hog will explain.

Take gold and silver as examples of minerals which have enjoyed spectacular price rises thanks to underlying demand for investments which are believed to provide protection from the relentless slide in the value of the US dollar.

Rather than buying fistfuls of gold or silver, investors have turned to the ETF market where funds are pooled.

The ETF management buys (or rents) metal to back the investment and the investor can claim to have title to a certain number of ounces of gold without ever taking physical possession.

All good so far, but there is absolutely guaranteed to be a crisis in both of those metals when economic normality returns and they cease to be the investment flavour of the moment – and a wholesale exodus is triggered, leading to a collapse in metal prices as everyone rushes for the exits and no one is buying.

The Hog, at this point acknowledges that he’s got too far ahead of himself because, so far, there has not been a run on a gold or silver ETFs, it’s been all one-way, upward, traffic.

Coal is just embarking on a trip down the ETF road, and if you’re in the coal industry it will be nothing but good news for some time because the arrival of a new class of investment product creates another market for the stuff, just as demand (and prices) are booming.

Japan’s nuclear troubles, coupled with the failure of renewable energy sources to prove they can provide commercial quantities of base load power and a worldwide shortage of coking coal has pushed prices into unchartered territory.

Thermal coal has hit the $US130 a tonne mark. Coking deals are being written at $US338/tonne – a perfect time for financial engineers to launch coal-backed ETFs as a mechanism for investors to get direct exposure to a hot commodity.

The question, which has The Hog scratching his head, is what happens when (not if) a cash-heavy coal-focussed ETF starts acquiring cargoes of coal and plays speculative games in a way currently reserved for professional commodity dealers such as Hong Kong’s Noble Group and Switzerland’s Glencore.

The answer is even higher coal prices, driven by a rush of new money seeking a slice of the physical coal game which has, until now, been a closed door to most investors.

That’s why the sudden inflow of funds into KOL, coupled with a sharply higher flow of investors capital into the two other listed coal ETFs, PKOL from Powershare, and a fund run by ETF Securities, will add a fresh layer of buyer interest to coal – and push prices even higher.

What happens when a coal ETF has to fund an exit of investors will be interesting to see, though right now we seem to be living in a world where commodity prices only rise – until they don’t!