Japanese retail investors are stepping up their online gold investment in a trend that is unlikely to be reversed, an executive at a top online commodity trading firm said on Tuesday.

As the country's retail investors catch up with global trends of asset diversification, they are hunting for alternative investments to enhance returns, and the trend is spreading outwards from the rich to engulf ordinary people.

Japan's risk-averse retail investors are estimated to hold an eye-popping $16.4 trillion, more than half of it in cash and deposits, Mizuho Bank, the country's second-largest lender, says.

Although the global financial crisis hit the real economy and battered commodities directly linked to the economy, gold remains unscathed by such declining industrial demand while retaining merit as an asset.

Given its relatively stable value, interest in gold will persist for a while and the market will remain bullish, Naoaki Kurumada, chief executive of Dot Commodity, Inc, told Reuters.

Gold is our main commodity product -- by purchasing gold, investors can start including commodities in their portfolios.

Since its establishment in 2005, the company has grown as Japan's top online commodity trading firm, with about 20,000 accounts against some 50 initially, and assets of 8 billion yen ($87.45 million) by October. It is also second in the online commodity trading industry in volume terms.

The company is drawing interest from seasoned online traders who are turning to commodities for high returns, as Japanese stocks have plunged and the yen has strengthened.

I expect online accounts to increase, given the strengthening appetite for asset diversification and more people finding commodity trading interesting, Kurumada said.

There are two key kinds of investors who use the firm's services. One of them has experience in trading currency or stocks online and can analyse technical charts or moves in other markets to aim for high returns amid price fluctuations.

Some are day traders, others more longer term, like a few weeks. They are largely in their 30s and 40s, Kurumada said.

The other type is non-traders interested in commodity investment who buy gold as a start, he said.

Reflecting the popularity of the yellow metal as an investment, the open interest in the gold mini contract, launched in July 2007, hit a record high 83,428 contracts on Jan. 8, according to Tokyo Commodity Exchange Inc (TOCOM), exceeding that of the standard gold contract.

TOCOM will extend trading hours of all derivatives contracts later this year to boost liquidity after Japan's main commodity market launches upgraded trading systems in May.

Kurumada said this would help attract more investor interest to commodity investment and trading, as it would allow players to cut losses timely or swiftly react to overseas market moves.

We hope that the environment will be set so traders can reap profits just like in currency and stocks, he said.

While Japanese retail investors are waking up to the attraction of commodity investment, the pace of growth may be moderate.

About 20 percent of those investing in gold, for instance, are investing in TOCOM's gold mini contract and about 10 percent are actively trading. The rest are investing in such products as gold savings plans, Kurumada said.

Retail investors jumped on the gold mini contract a year after its launch. It takes time for them to catch up, he said. ($1=91.48 Yen) (Editing by Clarence Fernandez)

© Thomson Reuters 2009 All rights reserved