Japan’s Gold Market Sees Unprecedented Shift Amid Crude Oil Rise and High Gold Prices

Japan’s Gold Market Sees Unprecedented Shift Amid Crude Oil Rise and High Gold Prices

The Japanese gold market is experiencing a significant shift in investor behavior, driven by a combination of factors including a generational change in investors, the depreciation of the yen, and the introduction of new investment accounts. This shift is occurring despite historically high gold prices, which have reached levels never seen before in the country.

Bargain Buying No Longer Dominant

Historically, Japanese investors were known for their bargain-hunting style, where they would buy gold in large quantities when prices dropped. However, this trend has reversed in recent years. Despite the high prices, Japanese investors are not selling their gold holdings as one would expect. Instead, they are continuing to buy gold, driven by a new attitude towards the precious metal.

Generational Shift

The older generation, which dominated gold investment in the past, is exiting the market, selling their gold. In contrast, a younger demographic, including men and women in their 20s and 30s, is entering the market. This new generation has not witnessed the lower gold prices of the past and is less deterred by the current high prices.

Yen Depreciation

The Japanese yen has depreciated significantly against the US dollar, causing concerns about holding yen in bank accounts. As a result, investors are increasingly viewing gold as a hedge against inflation and yen depreciation. This new investment purpose effectively explains the trend of Japanese buying gold despite historically high prices.

New NISA Account

The introduction of a new NISA (Nippon Investment Saving Account) with a higher investment limit and no time constraint is also driving gold investment. The new NISA will include gold ETFs, which have seen continuous increases in holdings despite higher prices.

Gold ETF Balance

Japanese gold ETF holdings have been increasing steadily, with most new investments coming from current NISA accounts. This trend is expected to gain momentum with the launch of the new NISA program in 2024.

Gold-Crude Oil Spread

The relationship between gold and crude oil has also seen a significant divergence. Historically, gold has been more expensive relative to crude oil. However, the current spread indicates that oil is cheap relative to gold, presenting an opportunity for traders to profit from mean reversion trades.