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
Many investors do not remember October 19th 1987.
That was the day the stock market crashed. The Dow fell over 500 points/23% in one day. The crash was a culmination of a decline that had started in August.
It is important to note that gold served as the best source of liquidity during that crisis and increased in price between October and the end of 1987.
We bring this up because there is an important article on Marketwatch that points out distinct parallels between the conditions that existed in 1987 and today:
Current drop echoes 1987 crash prelude
By Jon D. Markman
The Dow Jones Industrials have fallen 450 points over the past two days, and a lot of the blame has been placed on the re-election of the president. But anyone paying attention to the market over the past three months recognizes that the peak was actually made the week that the Federal Reserve announced a third round of quantitative easing. That was expected to be a positive event, but in retrospect, it ushered in a rolling thunder of value-eroding news events.
Soon after began a very underwhelming earnings reporting season, word of a deepening industrial slump in China, a broadening recession in Europe and the martyrdom of Spain. And then this week it suddenly dawned on people that if U.S. lawmakers can’t stop acting like stuck-up brats, then $1.2 trillion worth of ham-handed spending cuts and tax increases are about toplotz on red states and blue states alike in the coming year.
Independent estimates suggest that would shave four percentage points off GDP faster than you can say “sequestration,” or “defenestration” for that matter, and lead to millions of lost jobs. It looks like the president would be OK with that, since he booked a tour of Myanmar for next week.
In short, the election put an exclamation mark on a parade of indignities, but it is far from the only proximate cause. Investors have liquidated U.S. assets for a while; it’s just more noticeable this week.
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 7, 2012
The US stock market appeared to have an allergic reaction to the results of yesterday’s presidential election, with the Dow falling some 313 points, or 2.36%, today. The S&P 500 slid 34 points, or 2.37% and the Nasdaq Composite fell 75 points, or 2.48%.
Actually, it wasn’t just the outcome of the election that stocks were reacting to, there were other factors in play.
Traders were very concerned about the approaching fiscal “cliff” and fear that the sharply divided government and country will be unable to come to terms to deal with it as 2012 winds down.
In addition, traders are once again worried about Europe. Greece is set to have another parliamentary vote on yet another austerity package designed to prevent a frightening default and there is a great deal of uncertainty surrounding whether that vote will produce a favorable outcome.
What all this indicates is that the US and Europe are both awash in debt and the financial world is skeptical that either will take meaningful steps to solve their problems. This is an environment fraught with risk and, in a risky environment, there is no better safe haven than gold.