Gold in Japan ETF Expands 10% as Price Drop Entices Buyers

Japan’s biggest bullion-backed exchange-traded fund expanded 10 percent this year by volume, bucking a global trend as lower prices and the yen’s weakness spurred buying as a hedge against inflation.

Bullion held by the ETF exceeded 6 metric tons on July 5, nearing a record reached in October, said Osamu Hoshi, general manager at Mitsubishi UFJ Trust and Banking Corp., which introduced the nation’s first gold-backed ETF three years ago. The value of assets held by the fund declined 5 percent this year to July 5 as gold futures in yen slid 13 percent, he said.

Gold in London is poised for the first annual drop in 13 years as the Federal Reserve said it may taper stimulus, boosting the dollar and reducing the appeal of bullion as an alternative asset. Holdings in global exchange-traded products backed by the metal are down 24 percent this year to 1,993.76 tons, heading for the first annual drop since the products were introduced in 2003, and wiping $61 billion from their value, according to data compiled by Bloomberg.

“Bullion is sought here as a hedge against inflation and a rout in financial markets,” Hoshi said in an interview in Tokyo yesterday. “A drop in gold prices attracted Japanese buyers.”

Gold for immediate delivery traded at $1,258.20 an ounce at 3:09 p.m. in Tokyo. The metal retreated 23 percent in the second quarter. Global investors sold 404.4 tons from exchange-traded products backed by the metal in the second quarter as prices tumbled into a bear marketin April.

Tocom Gold

Mitsubishi UFJ’s ETF is linked to yen-based gold prices on the Tokyo Commodity Exchange, Japan’s largest raw-material bourse. Gold futures on Tocom have lost 12 percent this year, less than the 25 percent slump in the spot market, as the yen fell 14 percent against the dollar.

Inflation expectations by Japanese consumers remained at 3 percent for a second quarter in June, a Bank of Japan survey showed July 5. BOJ Governor Haruhiko Kuroda is counting on unprecedented monetary easing to encourage spending and credit demand as Prime Minister Shinzo Abe aims to end deflation and revitalize the world’s third-largest economy, dubbed Abenomics.

Japanese consumers are poised to become net buyers of gold for the first time in eight years as the yen’s decline and looming inflation drive them to seek refuge in bullion, Bruce Ikemizu, the head of commodities trading in Tokyo at Standard Bank Plc., said in an interview in April.

Pension Funds

Assets held by Mitsubishi UFJ’s gold ETF reached 24.58 billion yen ($243 million) on July 5, compared with 25.86 billion yen at the end of last year, Hoshi said.

About half of the assets are held by individual investors, with the rest owned by financial institutions, pension funds and corporations and foreigners, Hoshi said.

Trading value in Mitsubishi UFJ Trust’s gold ETF on the Tokyo Stock Exchange amounted to 7.23 billion yen in May, becoming the most-traded commodity fund listed in Japan, according to data compiled by the bank.

Mitsubishi Corp. (8058), Japan’s largest trading company, supplies gold to the ETF through imports and recycling. The products can be exchanged for bars of at least 1 kilogram.

Assets in the SPDR Gold Trust, the biggest bullion ETP, fell 15 tons yesterday, the most in two weeks. Holdings stood at 946.96 tons, the least since February 2009.

Banks from Goldman Sachs Group Inc. to Credit Suisse Group AG cut their price forecasts last month.

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