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.
December 10, 2012
The approaching fiscal cliff and the probability of higher taxes could prompt an end of year sell-off in the stock market. Investors should prepare by diversifying into assets which are not positively correlated with stocks. Gold investments in particular are well-suited for this purpose…
Wall St Week Ahead: “Cliff” worries may drive tax selling
Investors typically sell stocks to cut their losses at year end. But worries about the “fiscal cliff” – and the possibility of higher taxes in 2013 – may act as the greatest incentive to sell both winners and losers by December 31.
The $600 billion of automatic tax increases and spending cuts scheduled for the beginning of next year includes higher rates for capital gains, making tax-related selling even more appealing than usual.
December 6, 2012
In another indication that the financial markets are resting on shifting sands, the tech world’s darling, Apple Computer, has now seen its stock fall precipitously, as we reported previously. Now, however, the stock has experienced its worst decline in 4 years.
Investors should take this as a warning that they need to diversify into investments that are not positively correlated with stocks. Gold investments, such as rare gold coins, have historically moved independently of the stock market, making them an ideal diversifier for a balanced investment portfolio…
November 16, 2012
Despite very questionable economic news, the stock market has appreciated in much of 2012. It was led principally by Apple Computer, the darling of the tech industry.
In case you haven’t noticed, Apple is in trouble now. It’s stock is down, way down from its highs. In fact, Apple shares have fallen 25% since late September. Yesterday the stock fell 2.4%.
Investors must consider whether or not Apple is the “canary in the mineshaft.”
How can a company whose shares investors chased up 74% in a year suddenly fall out of favor like it has?
Something is spooking investors. And we suggest that that something should not be viewed as exclusive to Apple. The stock market is vulnerable and investors should diversify into assets that are not closely correlated with stocks.
Rare gold coins are particularly useful in this regard.
November 13, 2012
As many readers already know, due to long-term irresponsible fiscal policies, the US government finds itself headed to the edge of a so-called “fiscal cliff.”
Policymakers in Washington are trying to strike a deal to head off the carnage, but their track record is awful on such deals. What we are soon to be faced with is a combination of large budget cuts and sizable tax increases, which will kick in if nothing is done.
Faced with the possibility of tax hikes, America’s wealthy investors are taking action ahead of time and it isn’t good news for the markets; wealthy investors are liquidating stocks, real estate and even whole businesses to avoid higher tax rates in the future. This is obviously terrible news for the stock market, the real estate market and the economy as a whole, creating the type of environment in which hard assets, such as gold coins, thrive.
Meanwhile, long-time market analyst, Marc Faber of The Gloom Boom and Doom Report actually says that there will be no fiscal “cliff.” Nevertheless, he predicts that corporate profits are certain to disappoint, resulting in a stock market decline of 20% or more. Faber points to Apple Computer as a leading indicator; Apple’s stock has fallen 20% in recent months already.
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.
October 25, 2012
For quite some time, we’ve been warning that America‘s fiscal and monetary policies would eventually result in higher inflation.
Now the mainstream media has finally caught on. Reuters is warning of tough times for Americans in 2013 due to higher prices for many items. In other words, higher inflation is on its way:
Consumers will have to dig deeper into their pockets next year to pay for costlier healthcare, more expensive grocery bills and higher taxes, an extra drag on the country’s already slow-moving economy.
Rises in the prices of corn and soybeans and other field crops as a result of drought this year in the U.S. Midwest are expected to feed through into food prices late this year and in early 2013.
U.S. soybean prices jumped 40 percent over the summer, while wheat shot up about 50 percent. Prices have eased a bit since then, but the increases are expected to filter down to consumers.
The arrival of higher inflation also has serious implications for investors. Historically, periods of high inflation have been unfriendly for the stock and bond markets. On the other hand, gold investments tend to lead the way during periods of high inflation. This is true of a broad array of gold investments, not just gold bullion.
For example, rare gold coins tend to outperform gold bullion due to their added scarcity. They also offer security and privacy advantages over other forms of gold investment.