Japanese pension funds have shown strong interest in buying gold, prompted in part by "Abenomic" easy money policies, according to the gold trade group the World Gold Council.
“It is an area of growth for very natural reasons, especially in a period like this,” said council investment researcher Juan Carlos Artigas, at a council event in New York on Wednesday. “We definitely expect a continuation of this trend in Japan.”
Estimates for how much Japanese pension funds are likely to buy in 2014 weren’t immediately available.
Artigas cited inflationary pressure on the Japanese yen and diversification away from Japanese government bonds as prompting some of the pension fund activity.
“With the advent of Abenomics, you actually see inflation for the first time,” added William Rhind, a council managing director for institutional investment. “That correlates exactly with this interest in that you’ve seen, particularly from Japanese institutions which haven’t historically owned gold, certainly in the last ten years.”
Gold’s ability to act like a currency makes it a natural hedge against loose monetary policy the world over, council executives told reporters. Japan’s aging population also boosts pension interest in gold.
“We’ve seen a large uptick in terms of small allocations to Japanese pension plans,” in the past few years, council investment director Kevin Feldman told IBTimes last week.
The allocations help hedge risk against heavy long-term pension liabilities. Pension plans typically allocate around 5 percent or so of their portfolio to gold investments, in line with broadly cited investment strategies.
Japanese pension funds oversee $3.36 trillion in assets, according to Bloomberg Businessweek. The council partners with Mitsubishi Corp (TYO:8058) to sell gold exchange-traded fund (ETF) products to pension plans and wealthy pensioners.
Noted investor Dennis Gartman has said he is bullish on gold specifically in Yen terms.
Japan is also on track to become a net importer of gold this year, for the first time in years, Feldman said. Demand there still pales in comparison with Asian neighbors like China and India.
Mexican pension plans have also shown interest in gold investment, said Feldman.
Central banks, another major source of gold buying, have collectively slowed their purchases for the year to date. Russia sold gold for the first time in a year in September.
Gold has faced a volatile year of price swings, after a precipitous price plunge in April, which saw many investors flee the precious metal. Major U.S. institutional investors, like hedge funds, have cut back significantly on their gold holdings this year.