Japanese Pension Funds With $3.4 Trillion In Assets Seek Safety In Gold

Tyler Durden's picture

From GoldCore

Japanese Pension Funds With $3.4 Trillion In Assets Seek Safety In Gold

Today’s AM fix was USD 1,699.50, EUR 1,289.26 and GBP 1,048.10 per ounce.
Yesterday’s AM fix was USD 1,690.00, EUR 1,285.27 and GBP 1,043.21 per ounce.

Precious metals crept higher yesterday and closed with very slight gains for both gold and silver. 

Gold closed up 0.22% or $3.80 to $1698.00. Silver closed with a marginal gain of 0.12% - up 4 cents to $32.21/oz.

Prices crept gradually higher in Asian trading prior to some retrenchment in early European trading.

U.K. inflation held at the highest since May in November as higher food, electricity and gas costs kept consumer-price growth above the Bank of England’s target.

The fastest price rises were seen in the cost of fruit, bread and cereals, as well as in energy bills, the Office for National Statistics (ONS) said. Inflation is now expected by many investors and economists to creep up further next year as further increases in electricity and gas prices take effect.

Many traders are on the sideline as trading slows down prior to Christmas. The focus remains on U.S. lawmakers attempts to cobble together a deal to avert the 'fiscal cliff'. There is optimism that a deal can be done to avert fiscal disaster.

While this may be the case in the short term - another short term political panacea which fails to address the very poor deep rooted structural fiscal challenges may lead to an even greater fiscal disaster in the course of President Obama's second term.

The fundamentals which have led to another annual gain in 2012 (8% in dollar terms) remain in place.

Ultra loose monetary policies from the U.S. Federal Reserve, the Bank of England and other central banks will provide support, as currency debasement and rising inflation leads to continuing demand for bullion.

These fundamentals are leading to broad based global demand for gold - from retail investors to institutions and pension funds. Japanese pension funds are increasingly looking at gold according to an article in the Wall Street Journal this morning.

Diversification into gold is taking place in order to protect against sovereign risk, debasement of currency risk and inflation risk.

In March 2012, Okayama Metal & Machinery became the first Japanese pension fund to make public purchases of gold, in a sign of dwindling faith in paper currencies. Okayama manages pension funds for about 260 small and mid-sized companies in the Okayama area.

"By diversifying currencies, we aim to reduce risks associated with them," said Yoshi Kiguchi, the fund's chief investment officer. "Yields become stable if you put small amounts into as many types of holdings as possible."

Of its 40 billion yen ($477 million) in assets, the fund has invested around ¥500 million-¥600 million in gold, he said.

Initially, the fund aims to keep about 1.5% of its total assets of Y40bn ($500m) in bullion-backed exchange traded funds, according to chief investment officer Yoshisuke Kiguchi, who said he was diversifying into gold to “escape sovereign risk”.

Other pension funds in Japan are following their lead according to the Wall Street Journal.

Japanese pension funds are diversifying into gold "largely to mitigate the damage from possible market shocks".

Japanese pension funds invest mainly in domestic stocks and bonds. Until recently, none have looked to gold or other physical assets.

For example, Japan's Government Pension Investment Fund, the world's largest public pension, held 64% of its assets in domestic bonds, 11% in domestic stocks, 9.0% in international bonds, and 12% in international stocks, as of end-September. The remainder were in short-term assets.

This strategy has produced meager returns at a time when bonds offer historically low yields and the stock market has stagnated.

Worse yet, when crises have roiled the markets, big funds such as the GPIF have seen red. The GPIF lost 7.6% in the 2008 fiscal year, when the global financial crisis struck, and a less-painful 0.3% in the 2010 fiscal year, when the euro-zone debt crisis spooked markets.

Gold, whose price movement isn't historically correlated with those of stocks or bonds, can protect portfolios from being damaged too badly in times of market stress, investment managers say. Low interest rates also justify holding non-yielding gold in place of cash.

Mitsubishi UFJ Trust and Banking Corporation said it has secured more than Y2 billion in investments from two pension funds for a gold fund it started in March.

Gold is also used as a hedge against inflation, which is becoming a bigger concern as global central banks buy ever-more bonds, market watchers say.

The Bank of Japan has increased its purchases of Japanese government debt from the market and is under political pressure to do more. Shinzo Abe, Japan's next prime minister, has said he wants the central bank to employ "unlimited easing measures" to achieve a 2% inflation target.

"Responding to inflation is becoming one issue," said Hiroaki Nakaoka, sales manager for SPDR ETF Japan at State Street Global Advisors (Japan) Co.

Higher inflation could drive up interest rates and erode the value of the Japanese government bonds in which pension funds have invested most of their money.

In some ways, Japanese pension funds are merely tracking a trend that has already been seen in other developed markets, industry watchers say. Gold's potential to offset inflation-linked losses has already prompted some U.S. and European pension funds to buy small volumes. The Teacher Retirement System of Texas pension trust fund, for example, held $235 million of SPDR Gold Shares GLD +0.19% out of its total investment net value of $111.1 billion, as of end-August.

The emergence of gold exchange-traded funds has enabled pension funds to invest in gold without holding the physical product. Some funds restrict themselves from investing in physical assets. The first ETF backed by actual gold was introduced in Japan in June 2008.

ETFs "opened the door" to investment in gold, said Tetsu Emori, chief fund manager at Astmax Investment Management Inc., which manages ¥70 billion in assets. Roughly 60% of its portfolio is invested in commodities, with gold accounting for the largest portion.

In March 2011, Mizuho Trust & Banking Co. started incorporating gold in a package product for pension funds that invests in various assets, including gold ETFs. Gold accounts for about 3% of the package. The product has attracted ¥180 billion in investment from about 200 pension funds.

The vast majority of pension funds continue to shy away from gold, an investment that offers no yield and, in the case of physical gold, actually costs money to store.

But the potential for market turmoil and expectations of inflation could change that, industry experts say.

The global pension market is of a huge scale - with the Japanese pension market alone worth some $3.4 trillion. 

Even a small allocation by pension funds internationally to gold would result in a significant new source of demand which could be a new fundamental factor which propels prices higher in the coming years.


Some Japanese Pension Funds Seek Safety in Gold - The Wall Street Journal

Gold remains below closely watched $1,700 mark - MarketWatch

Gold Advances as U.S. Budget-Deal Optimism Spurs Commodities - Bloomberg

Gold struggles to break $1,700/oz, US fiscal talks eyed - Reuters

Corporate insiders increasingly bullish on gold - The Globe and Mail


Japan's Abe prepares to print money for the whole world - The Telegraph

Jim Grant: "Blind indifference to the possibility of rising interest rates" - YouTube

Silver Outlook For 2013 - Seeking Alpha

Charting US Debt And Deficit Since Inception - Zero Hedge

For breaking news and commentary on financial markets and gold, follow us on Twitter.

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GetZeeGold's picture




You want $3.4 Trillion of WHAT?

Azannoth's picture

They can have all the Tungsten backed Paper they want, nobody cares.

economics9698's picture

Platinum and palladium, physical, works. 

kliguy38's picture

Yup....and when the paper sham in gold investment starts to crack then all of the peeps will do anything to get their hands on the gold......but its not there.....WHO do you think has the gold.......hehehhehehe......WHO???

Stuart's picture

paper or not, it IS bullying down the spot price as a tool of market price rigging. 

GetZeeGold's picture



Would have thought it would have jacked it up......what do you suppose that's all about?

kliguy38's picture

Ultimately the price of gold will be allowed to move up into the next stage......This will occur over the next year.......it will be after this period of movement that things will get profoundly more interesting. But of course the game will all be resolved in one manner or another and the true power will be holding the bulk of gold.

EnslavethechildrenforBen's picture

In a few years Gold will be valued at several thousands of dollars per ounce.

The GLD will be worth it's paper value, ZERO

MeelionDollerBogus's picture

gld vs gold spot is a reliable 10.33 ratio.

Will you say GLD bullied down the price as gold rose from 660 to 1000? Or how about the rise to 1900? How about the next rise coming to 2400?

If you shorted GLD or bought Puts while buying bullion near a peak for DELIVERY you'd probably not feel bad at all about using it. If you'd buy GLD calls at the base of one of those sharp rises again you'd probably feel very clever about doing it.

Of course, timing is critical.

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patb's picture

Unless you take physical delivery, it's just paper.


MF Global anyone,  Bueller????

kensdad's picture

Well, I'm glad to hear that some of these Japanese pension funds are buying the paper gold, since all that paper selling has been suppressing the price of gold beyond anyone's imagination.

They can list their paper gold assets on the line below their paper equity & fixed income assets.  What difference does it make to them.  It's OPM anyway, right?

LongSoupLine's picture

OT (sort of):

David Stockman just went on CNBC and tore those stupid fucks a new asshole.  Said he was "turning in his "Rise Above" pin" because we need to go over the cliff. 


Fucking brilliant, and hope Tyler posts the brief interview (the assholes cut him off fast).

GetZeeGold's picture



(the assholes cut him off fast)


Before or after Joe Kernen said "oh shit"?

LongSoupLine's picture

Kernen was a complete Bernanke dick suck.  He took most the speaking time defending Fed actions as "saving the economy" and other fucking stupid shit.  I fucking hate that asshole.  With the limited time Stockman had however he still shoved a big fuck you up CNBC's ass.

MachoMan's picture

The panel is clearly more knowing than they let on...  every once and a while, their real perspectives get shown inadvertently (like the santelli rant where kernan can be heard saying "oh shit" in the background)...  they just take whatever role they're supposed to on a given day and basically paint an even keel...  dismissing counter viewpoints and ultimately painting a picture from the middle (clearly choosing a side, but not being edgy about it)...  very subtle...  very effective.

JimBowie1958's picture

They ALL suck dick.

If they dont suck dick the Big Boys wont let them into their Golden Circle.


swissaustrian's picture

1-1.5% asset allocation is $3-4.5bn, that's 55-82 tons of gold at current prices or 2-3% of annual mine production

chubbar's picture

Might want to check your math on that. 4.5 billion is 1.5% of 300 billion last time I checked.

kensdad's picture

In the meantime, gold continues to see unlimited selling during U.S. trading hours.  This makes the transfer of gold from the West to the East easy for the buyers.  Rather than having to chase it higher, they can just let their bids get hit by the algos.

Winston Churchill's picture

It's some sort of quid pro quo for not dumping their existing UST holdings.

Somebody else can do the math on saving $300/600/1000  per oz,

How many tons to get back $2T ?

We have no idea of how much they are really buying.

r3phl0x's picture

It's some sort of quid pro quo for not dumping their existing UST holdings.

Yep, and I am happy to tap this Chinese-UST-blackmail-discount on PMs while it lasts.

youngman's picture

"The emergence of gold exchange-traded funds has enabled pension funds to invest in gold without holding the physical product. Some funds restrict themselves from investing in physical assets. The first ETF backed by actual gold was introduced in Japan in June 2008."


Paper gold.....an ETF gold backed fund.....really......where is the gold...can you touch it..audit it...take it away if you want....its just paper......I think you will see more and more of this in the future....Pensions buying ETF gold and silver....thinking they are buying PM´s..but they really are putting themselves in a worse state...they are buying the lowest tranch of Subprme loans that are rated AAA...lol.....they are buying nothing ...paper

kensdad's picture

Sounds like they will get a bailout when they find out that their paper gold was just an illusion.  The Fed can print up lots of paper money to make them whole.

Why all the whining about pension funds buying paper gold?  Someone had better start buying the damn stuff, since the sellers are having plenty of success in shorting the stuff.

malikai's picture

Gold closed twice and has now inverted with a big ANN change. Things might start getting a bit interesting again now.


Stuart's picture

This means the ESF through GS must bomb gold to invoke the usual counterintuitive response.  Naw, no manipulation and price rigging here.   Gold mining is a hard business, so why on earth miners abide by the rigged prices on the LBMA and COMEX is beyond me.   They should instead withhold their gold from deliveries to exchanges and demand hundreds of dollars more else stockpile. 


orangegeek's picture

For the US dollar to fall, the Euro, Yen, Pound and C-Dollar have to climb.  This is by definition the US Dollar index.


Well the Yen is starting to collapse.  If the Euro starts to collapse, the US Dollar will rocket.


And gold priced in US Dollars will fall hard.



edifice's picture

That'd be great... I'd back up the truck.

Crispy's picture

Large pension funds barreling into my precious does not make me feel good. These mo`s couldnt get it right twice a day if they were a broken clock.

fonzannoon's picture

What if the dollar rises against an imploding Yen, stays flat against the euro and falls hard against the rest of the asian currencies, latin american currencies, ruble, CAD, USD etc. etc etc.

Essentially what if developed currencies crash against EM currencies?

Tabarnaque's picture

Gold ETF's are just another way for the cartel to manipulate the market and keep investment funds away from generating a real demand for physical gold. Anyone using ETF's is helping the banking cartel in their PM's price manipulation. And the day the s... hits the fan, those with ETF's shares will be lucky to be offered some fiat paper currency in exchange for their investments. But the reality is that they will likely loose everything, just like what happened with MFG and PFG. 

MsCreant's picture

Japan: Give us a lower price on gold or we openly announce the exact details of how the system is rigged. 

Bennie: Okay, okay. Cool your tool fool. We got you covered. We'll set the Algos to start selling newly created "gold" at 8:19 AM Fed time. That work for you?

fuu's picture

You can't set up a Greater East Asia Co-Prosperity Sphere with paper gold.

mick_richfield's picture


I met a traveller from an antique land who said

two vast and trunkless legs of stone stand in the desert

and round the pedestal these words appear:

"Yields become stable if you put small amounts into

as many types of holdings as possible."

Nothing beside remains.

Round the decay of that colossal wreck,

boundless and bare,

the lone and level sands stretch far away.

Bansters-in-my- feces's picture

"Prices crept gradually higher in Asian trading prior to some retrenchment in early European trading." You mean "prices were allowed " to creep higher.


Gold is so manipulated by the fed and the gov,it makes me puke.


But so do roller coasters and I keep on going for a ride.

Ps....Fuck yous Timmy and Ben. & Co

larz's picture

Gold is down 23 bucks today!!!?????!!!!