Japanese Gold Etf Resists Outflow Trend

The Japanese bullion-backed gold trading instrument has bucked the global gold trading trend over the last few months. Bullion-backed ETF redemptions skyrocketed over the last few months, after the price of gold fell by more than 20 per cent in a short space of time.
During the same time period, ETFs for gold in Japan have surprised everyone by showing rapid growth. The growth was inspired by low prices in Japan and the relative weakness of the Yen. Many investors saw this as an opportunity to protect themselves against inflation.

More than six metric tons held

The biggest of the Japanes ETFs holds more than six metric tons of bullion at the moment, which is close to the record amount held by that fund. The overall value of the assets inside the ETF have fallen over the course of the year, in spite of the increased holdings.
The gold ETF is a resilient fund and it is likely to rebound over the next few months, however while the value is low, investing in the bullion is a good way to hedge against inflation. Osamu Hoshi of Mitsubushi UFJ Trust and Banking Corps told Bloomberg that investors are attracted to the Japanese markets because of the low prices.

The market is changing

The ETF is a popular instrument and has revolutionised the gold market over the last 10 years. Gold enjoyed a bull run which lasted for more than a decade and that run is, in part, due to how easy ETFs have made it to invest in the precious metal.
Unfortunately, the ease of investing has brought its own downsides. ETFs have helped to increase the volatility of the market and also sucked investment out of other parts of the industry, such as gold mining stocks. This lack of investing has left the mining sector both under-funded and under-valued.

At the end of 2012, gold bullion holdings were in excess of 2,600 tonnes, spread across more than 140 ETFs. Over the course of this year, bullion holdings have fallen by one quarter, to just under 2,000 tonnes. That decline resulted in a fall of $61 billion in financial terms and because ETFs can be redeemed for cash only, not bullions. That is a lot of money that has been drained out of the market.

Annual declines in the average value of gold are quite rare and when they do happen they are followed by an increase, so there is no reason to expect that gold will stay down, especially considering the many uses of the metal. Not only is gold used in the production of jewellery, it is also used in a wide range of consumer electronics, from cell phones to TVs.
Even if the economy does not recover to the point where people are spending a lot on luxury goods in the near future, the practical uses of the metal will keep demand stable, ensuring a rise in value for Japanese and international gold related ETFs.