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Canary In The Gold Mine: In Historic Move, Japanese Pension Fund Switches To Gold For First Time Ever

Tyler Durden's picture




 

As US weak hands keep piling out of gold whether to make space for the Facebook IPO tomorrow, or just to load up on paper currencies in advance of central banks printing much more, two things have happened: China is now on its way to becoming the biggest source of gold demand, surpassing India, but more importantly as of hours ago, in a truly historic move, "Okayama Metal & Machinery has become the first Japanese pension fund to make public purchases of gold, in a sign of dwindling faith in paper currencies." Not our words: the FT's.

More:

Initially, the fund aims to keep about 1.5 per cent 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”.

 

The move into a non-yielding asset comes as funds in the world’s second-biggest pension market are under increasing pressure to meet promised payments, as domestic interest rates remain rooted near zero. This year, the first of Japan’s baby boomers turn 65, becoming eligible for payouts.

 

Mr Kiguchi said the lack of yield was a concern for the fund’s investment committee, but he persuaded them that “from a very long-term point of view, gold may be one of the safe currencies”. He added that he had sold Australian dollars this month to meet his initial target allocation for gold for the fund, which has 20,000 members.

 

Mizuho Trust & Banking, a unit of Mizuho Financial Group, has begun to offer investment schemes allowing smaller pension funds to invest in gold.

 

While few fund managers are counting on a crash in core assets such as Japanese government bonds, said Takahiro Morita, head of the Tokyo arm of the World Gold Council, a producers’ association, they were increasingly receptive to the idea that gold could act as a buffer against shocks. “Last year’s tsunami and the eurozone debt crisis shows that it was wise to expect the unexpected,” he said.

The first of many:

Historically, institutions in the $3.4tn Japanese pension market have clung to traditional assets. Bonds accounted for 59 per cent of industry assets in 2011, the highest share in the world, according to Towers Watson, a consultant. Just 6 per cent – the lowest share – was invested in alternatives such as property, private equity and hedge funds.

 

Nomura, Japan’s biggest wealth manager, added a gold option to its monthly survey of 1,000 randomly selected retail investors in February. Every month since, gold has been ranked the third-most desirable addition to portfolios, well ahead of competing assets such as investment trusts, bonds or foreign securities.

And the absolute punchline:

With institutions warming to gold, too, demand could grow further.  “If you look at assets over the past couple of decades, equity has been a loser, while fixed income offers tiny coupons,” said Yoshio Kuno, Japan head of Newedge, the futures broker. “Gold is becoming an acceptable currency substitute.”

So go ahead - dump all of your gold. The buyers are there.

In the meantime, more and more and more funds comprising the $3.4 trillion Japanese pension market will buy. And soon after, all the other pension funds, which just happen to amount to tens of trillions. Assume they allocate 5% of all assets to gold, or the market begins to discount this inevitability, and things start getting interesting.

 

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Wed, 05/16/2012 - 15:36 | 2432780 CuriousPasserby
CuriousPasserby's picture

What happens when a gold ETF pulls a MF Global?

 

Thu, 05/17/2012 - 03:39 | 2434332 Alpha Monkey
Alpha Monkey's picture

Then momentum will move into physical.  Yay!

Wed, 05/16/2012 - 15:50 | 2432817 HungrySeagull
HungrySeagull's picture

Hot damn, this is gonna be good!

Wed, 05/16/2012 - 15:56 | 2432842 Pete15
Pete15's picture

As Jim Rogers just said Gold & Silver could easliy correct 40% and that is good for it in the long run. It has been up for 12 years which is odd for any asset class. Fundamentals havent changed it is just correcting along with manipulation. Fine by me miners are being given away so load up and sleep. If you cannot do that buy the dollar and T-Bills and lose to inflation. Buy some nickles like Bass said and hold your metals, people will be stupid and run into the dollar but that is not safe either, so what comes after that?? Gold rush bitches!!

Wed, 05/16/2012 - 16:57 | 2433052 HungrySeagull
HungrySeagull's picture

Gathering Gold is like trying to lift 6 months basic needs up the 1000 ice cut steps over several weeks in Alaska.

I don't think I want into Gold at 1500... maybe 1200 if I have the guts to buy the stuff.

One thing to remember in this metal world... there a whip in terms of the spot price that can rise and fall tens of dollars and cut you in half over a few minutes at any time.

You need nerves of iron and no sense of danger.

And money (And Credit too if you have it) too to buy the stuff.

Wed, 05/16/2012 - 17:23 | 2433114 Vlad Tepid
Vlad Tepid's picture

The Japanese are the most change-averse people I've ever encountered.  If they are making the switch to metals, even ETF metals, that, to me, is a HUGE bellweather of sentiment.  It means the sentiment has already substantially shifted, otherwise the Japanese would not be moving this was.  Okayama Machinery is not exactly the biggest pension fund out there.  I hope Tyler can give us other updates on this stuff as it pops up.  Japan is indeed the canary in the coal (gold) mine.

Wed, 05/16/2012 - 19:22 | 2433411 patb
patb's picture

Hope they don't let MF Global hold their gold.

Thu, 05/17/2012 - 03:37 | 2434328 Alpha Monkey
Alpha Monkey's picture

The giants are stiring. One of many to come...

Wed, 08/08/2012 - 23:24 | 2689956 jonjon831983
jonjon831983's picture

Was reminded of this pension fund gold purchase since it seems to have finally been mentioned on BNN today that Japan pension was selling bonds and this July 25th post: http://www.zerohedge.com/news/kyle-bass-vindication-imminent-largest-jap...

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