After the $1 bn purchase of gold bullion in 2011 April by the University of Texas Investment Management Co, large institutional investors were largely absent from the market. Now, the Financial Times has reported that Okayama Metal and Machinery has become the first Japanese pension fund to make public purchases of gold.

Traditionally pension funds have ignored gold due to their focus on yields. Japan is the world’s second largest pension market, and this move by Okayama Metal & Machinery is worth paying close attention to. Such a move into non-yielding assets becomes more palatable in a world of negative real interest rates where institutional investors are paying for the ‘privilege’ of holding government paper.

Mizuho Trust & Banking, a unit of Mizuho Financial Group, has begun to offer investment schemes allowing smaller pension funds to invest in gold… While few fund managers are counting on a crash in core assets such as Japanese government bonds, said Takahiro Morita, head of the Tokyo arm of the World Gold Council, a producers’ association, they were increasingly receptive to the idea that gold could act as a buffer against shocks. “Last year’s tsunami and the eurozone debt crisis shows that it was wise to expect the unexpected,” he said… Nomura, Japan’s biggest wealth manager, added a gold option to its monthly survey of 1,000 randomly selected retail investors in February. Every month since, gold has been ranked the third-most desirable addition to portfolios, well ahead of competing assets such as investment trusts, bonds or foreign securities.

Succinctly explaining recent performance across asset classes, Yoshio Kuno, Japan head of Newedge, the futures broker, argued that “If you look at assets over the past couple of decades, equity has been a loser, while fixed income offers tiny coupons. Gold is becoming an acceptable currency substitute.”

William Bancroft – Commodity Online – May 18, 2012