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

December 18, 2012

The world’s largest, most sophisticated investors are turning to gold…

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.

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.

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.
http://www.zerohedge.com/news/2012-12-18/japanese-pension-funds-34-trillion-assets-seek-safety-gold
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Dollar Falls Before Fed Considers More Pumping…Gold Rebounds

December 10, 2012

The US dollar is starting to fall against world currencies as investors anticipate more stimulus by the Federal Reserve.

The dollar weakened against most of its major counterparts today amid bets the U.S. central bank will add to monetary stimulus. The U.S. currency fell versus the euro and the yen before the Federal Reserve starts a policy meeting tomorrow amid forecasts it will expand bond-buying plans.

“People are looking ahead to the Federal Reserve this week, which should be an event that is positive for risk and negative for the dollar,”  Nick Bennenbroek, head of currency strategy at Wells Fargo & Co. in New York, told Bloomberg News this afternoon.

The U.S. currency declined versus 10 of its 16 most-traded counterparts.

The U.S. Federal Open Market Committee meets for the last time this year on Dec. 11-12. It will consider whether to expand purchases of assets after its so-called Operation Twist program of swapping $45 billion a month in short-term Treasuries for long-term debt expires this month.

“There’s a good chance that the Fed will announce a new round of money printing and bond buying,” which would be negative for the dollar, said Imre Speizer, a strategist in New Zealand atWestpac Banking Corp. (WBC).

Not surprisingly, the weakness in the dollar pushed gold higher. Spot gold was last quoted up $8.00 per ounce to $1,713.00.

Gold tends to move higher on a weaker dollar for two reasons:

1. Gold is priced in dollars, so a weaker dollar naturally pushes up the price of gold in dollars.

2. Gold is considered a main rival to the dollar as the world’s reserve currency, therefore, when confidence in the dollar wanes, demand for gold tends to rise.

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Another Buying Opportunity in Gold

November 2, 2012

The price of gold fell to a two-month low today on a stronger than expected US employment report.

The consensus forecast was for the US economy to add about 125,000 non-farm jobs in October. The actual figure was 170,000. This boosted confidence in the US dollar, which took its natural toll on the price of gold, which fell below $1,700 per ounce.

The reason that this is such a good buying opportunity for investors is that usually gold reacts positively to signs of strength in the US economy. But because so many people are concerned about the US dollar, any good economic news creates speculation that more monetary stimulus may be unnecessary.

Many economists share a different view.

They believe that the existing monetary stimulus is not in fact “working” and thus not responsible for the stronger than expected employment report.

Moreover, the conditions that truly have created a long-term crisis in the dollar are America’s monetary and fiscal policies combined. With annual federal budget deficits of $1 trillion on top of the already gargantuan federal debt of nearly $17 trillion, the world is already awash in dollars it does not want. Couple this with years of low interest rates and a weak dollar is inevitable.

One positive employment report doesn’t change that, it merely creates a correction that represents a great buying opportunity for gold investors.


Big Banks’ Exposure to Derivatives Worse Than Ever

October 9, 2012

It has generally been accepted that derivatives are problematic financial instruments. Warren Buffett has called them “financial weapons of mass destruction” and he refuses to delve into them because he, of all people, simply cannot understand them.

That’s what makes this recent report that bank exposure to derivatives has skyrocketed all the more worrisome.

Given the lessons of 2008-2009, one would have hoped that banks would have backed off of derivatives. Today, US banks exposure to derivatives lies at $225 TRILLION. That is up from $120 TRILLION just six years ago.

This poses a great deal of risk to the banking system. The outcome is uncertain at best. It behooves investors to diversify into assets that are not vulnerable to a derivatives meltdown, namely gold. Gold is REAL and is thus not subject to the forces that could literally destroy the value of financial assets in a derivatives meltdown.

http://www.ourbroker.com/news/big_bank_derivatives_double_100412/


Gold Bulls Extend Streak as Prices Jump on Fed’s QE3 Program

September 20, 2012

Gold traders extended their bullish streak as analysts from Bank of America Corp. to Deutsche Bank AG forecast record prices by next year after central banks pledged more action to bolster economic growth.

The Federal Reserve announced a third round of debt-buying Sept. 13 and the Bank of Japan said two days ago it will add 10 trillion yen ($128 billion) to a fund that buys assets. The European Central Bank announced an unlimited bond-purchase program Sept. 6 and China approved a $158 billion subways-to- roads construction plan. Gold rose 70 percent as the Fed bought $2.3 trillion of debt in two rounds of quantitative easing from December 2008 through June 2011.

“Gold is one of the commodities that will benefit most from quantitative easing,” said Kamal Naqvi, the head of commodities sales in Europe, Middle East and Africa for Credit Suisse Group AG in London. “Everyone is talking about gold at $2,000 an ounce and I still think we’ll get to at least that.”

Gold rose 13 percent to $1,765.35 an ounce in London this year, reaching a six-month high on Sept. 19 and extending 11 consecutive annual gains. 

Gold will climb to $2,000 by the second quarter and will reach $2,400 by the end of 2014 if the Fed’s latest easing lasts until then, Bank of America said in a Sept. 18 report. Prices will exceed $2,000 in the first half of next year, Deutsche Bank wrote that day. Morgan Stanley expects gold to average $1,816 next year and Standard Chartered predicts a second-quarter average of $1,900. Both would be the highest ever.

http://finance.yahoo.com/news/gold-bulls-extend-streak-prices-230100001.html


Bank of America/Merrill Lynch: Gold headed to $2400/oz

September 18, 2012

When Wall Street starts admitting that gold is headed higher, it’s time to start doubling up on your gold investments.

Today Bank of America/Merrill Lynch weighed in on Fed monetary policy by proclaiming that it will send gold to $2,400 an ounce from its present price of around $1,770.

That’s a 36% increase. Not only that, the firm is calling for higher gold prices through the end of 2014…

In one of the most bullish gold calls since the Federal Reserve announced a new round of easing last week, one strategist sees a 36 percent jump in the metal’s price to $2,400 an ounce, by the end of 2014.

“The new target reflects our view that the Fed will maintain mortgage purchases until the end of 2014 and will move to buy Treasuries following the end of Operation Twist this coming December,” wrote Francisco Blanch, a global investment strategist with Bank of America Merrill Lynch, in a note to clients Tuesday.

“Given the new open-ended nature of QE3, the upward pressure on gold prices should continue until employment is strong enough to require a change in policy,” Blanch added. “In our view, this is unlikely to happen until the end of 2014.”

Gold is up two percent since the Fed’s statement as others besides Bank of America pile into the metal on fear these actions may spark inflation and leave the metal as the only store of value in a world of paper currencies. 

http://www.cnbc.com/id/49072875

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Dollar hovers near seven-month lows,

September 17, 2012

QE3 is having its predictable impact on the US dollar. The dollar is now down around a 7-month low. The polar opposite to the US dollar is gold, so investors should be accumulating gold investments in response to this latest slump in the US dollar…

The dollar hovered near a seven-month low against major currencies on Monday after the Federal Reserve’s announcement of aggressive monetary easing last week dampened the outlook for the U.S. currency.Some near-term recovery could be likely, however, given the dollar’s 3 percent drop so far this month, which may have been too far, too fast. The move pushed the euro to a four-month high against the dollar and the yen to a seven-month high.

The Fed pledged last week to continue buying mortgage bonds until unemployment falls significantly. The aggressive move came a week after the European Central Bank unveiled a new bond-buying program to address the region’s debt crisis.

“The outlook for the dollar has definitely been damaged by the policy actions by both central banks — the Fed and the ECB,” said Omer Esiner, chief market analyst at Commonwealth Foreign Exchange in Washington.

The dollar index, which measures the U.S. unit’s value against a basket of currencies, stood at 78.789 .DXY, not far from the 78.601 set on Friday, a level last seen in late February.