By John Irish and Jason Benham

DUBAI, Oct 28 (Reuters) - The Gulf region's first gold exchange traded commodity (ETC), a new investment vehicle launched earlier this year, is seeing only modest growth due to regional unfamiliarity with the product.

Grant Collins, senior managing director of the Dubai Commodity Asset Management, said the security was also hampered by a trend for bullion investment in the Middle East to come from individuals rather than institutions or funds.

Collins told the Reuters Middle East Investment Summit that the group may not have realised just how much people preferred to have the the gold rather than a gold-backed product.

The Dubai Multi Commodity Centre (DMCC) began offering the gold-backed ETC earlier this year in a bid to tap the local market's appetite for Islamic banking products.

Each security is 100 percent backed by physical gold, which is held in a safe kept by an independent custodian. One share represents 1 ounce of gold.

Collins said the instrument, which has traded some 40,000 shares worth about $4 million this year, had not been very popular because ETCs were not yet common.

"There just hasn't been a proper asset allocation model in this region," Collins said.

Nonetheless, he said the DMCC hoped to launch another ETC next year, banking on more investor awareness as more players enter the exchange-traded vehicle segment in the Middle East and North Africa (MENA)

National Bank of Abu Dhabi NBAD.AD has said it could list the region's first exchange-traded fund by early 2010 and "Once ... there is a distribution model for the MENA region, we'd certainly be minded to roll out other ETC products and the three most obvious are silver, platinum/palladium and likely a basket of four precious metals," Collins said.