Best of the Week
Most Popular
1. Gold vs Cash in a Financial Crisis - Richard_Mills
2.Current Stock Market Rally Similarities To 1999 - Chris_Vermeulen
3.America See You On The Dark Side Of The Moon - Part2 - James_Quinn
4.Stock Market Trend Forecast Outlook for 2020 - Nadeem_Walayat
5.Who Said Stock Market Traders and Investor are Emotional Right Now? - Chris_Vermeulen
6.Gold Upswing and Lessons from Gold Tops - P_Radomski_CFA
7.Economic Tribulation is Coming, and Here is Why - Michael_Pento
8.What to Expect in Our Next Recession/Depression? - Raymond_Matison
9.The Fed Celebrates While Americans Drown in Financial Despair - John_Mauldin
10.Hi-yo Silver Away! - Richard_Mills
Last 7 days
INTEL (INTC) Stock Investing in AI Machine Intelligence Mega-trend 2020 and Beyond - 18th Jan 20
Gold Stocks Wavering - 18th Jan 20
Best Amazon iPhone Case Fits 6s, 7, 8 by Toovren Review - 18th Jan 20
1. GOOGLE (Alphabet) - Primary AI Tech Stock For Investing 2020 - 17th Jan 20
ERY Energy Bear Continues Basing Setup – Breakout Expected Near January 24th - 17th Jan 20
What Expiring Stock and Commodity Market Bubbles Look Like - 17th Jan 20
Platinum Breaks $1000 On Big Rally - What's Next Forecast - 17th Jan 20
Precious Metals Set to Keep Powering Ahead - 17th Jan 20
Stock Market and the US Presidential Election Cycle  - 16th Jan 20
Shifting Undercurrents In The US Stock Market - 16th Jan 20
America 2020 – YEAR OF LIVING DANGEROUSLY (PART TWO) - 16th Jan 20
Yes, China Is a Currency Manipulator – And the U.S. Banking System Is a Metals Manipulator - 16th Jan 20
MICROSOFT Stock Investing in AI Machine Intelligence Mega-trend 2020 and Beyond - 15th Jan 20
Silver Traders Big Trend Analysis – Part II - 15th Jan 20
Silver Short-Term Pullback Before Acceleration Higher - 15th Jan 20
Gold Overall Outlook Is 'Strongly Bullish' - 15th Jan 20
AMD is Killing Intel - Best CPU's For 2020! Ryzen 3900x, 3950x, 3960x Budget, to High End Systems - 15th Jan 20
The Importance Of Keeping Invoices Up To Date - 15th Jan 20
Stock Market Elliott Wave Analysis 2020 - 14th Jan 20
Walmart Has Made a Genius Move to Beat Amazon - 14th Jan 20
Deep State 2020 – A Year Of Living Dangerously! - 14th Jan 20
The End of College Is Near - 14th Jan 20
AI Stocks Investing 2020 to Profit from the Machine Intelligence Mega-trend - Video - 14th Jan 20
Stock Market Final Thrust - 14th Jan 20
British Pound GBP Trend Forecast Review - 13th Jan 20
Trumpism Stock Market and the crisis in American social equality - 13th Jan 20
Silver Investors Big Trend Analysis for – Part I - 13th Jan 20
Craig Hemke Gold & Silver 2020 Prediction, Slams Biased Gold Naysayers - 13th Jan 20
AMAZON Stock Investing in AI Machine Intelligence Mega-trend 2020 and Beyond - 11th Jan 20
Gold Price Reacting to Global Flash Points - 11th Jan 20
Land Rover Discovery Sport 2020 - What You Need to Know Before Buying - 11th Jan 20
Gold Buying Precarious - 11th Jan 20
The Crazy Stock Market Train to Bull Eternity - 11th Jan 20
Gold Gann Angle Update - 10th Jan 20
Gold In Rally Mode Suggests Commitment of Traders (COT) Data - 10th Jan 20
Disney Could Mount Its Biggest Rally in 2020 - 10th Jan 20
How on Earth Can Gold Decline During the U.S. – Iran Crisis? - 10th Jan 20
Getting Your HR Budget in Line - 10th Jan 20
The Fed Protects Gamblers at the Expense of the Economy - 9th Jan 20
Last Chance to Get Microsoft Windows 10 for FREE! - 9th Jan 20
The Stock Market is the Opiate of the Masses - 9th Jan 20
Is The Energy Sector Setting Up Another Great Entry? - 9th Jan 20
The Fed Is Creating a Monster Bubble - 9th Jan 20
If History Repeats, Video Game Stocks Could Soar 600%+ - 9th Jan 20
What to Know Before Buying a Land Rover Discovery Sport in 2020 - 8th Jan 20
Stock Market Forecast 2020 Trend Analysis - 8th Jan 20
Gold Price at Resistance - 8th Jan 20
The Fed Has Quietly Started QE4 - 8th Jan 20
NASDAQ Set to Fall 1000pts Early 2020, and What it Means for Gold Price - 8th Jan 20
Gold 2020 - Financial Analysts and Major Financial Institutions Outlook - 8th Jan 20
Stock Market Trend Review - 8th Jan 20

Market Oracle FREE Newsletter

Nadeem Walayat Financial Markets Analysiis and Trend Forecasts

Whales in the Gold Market

Commodities / Gold and Silver 2012 May 18, 2012 - 03:50 PM GMT

By: William_Bancroft

Commodities

Best Financial Markets Analysis ArticleLast April gold investment analysts where excited to see a new institutional player enter the gold market. The University of Texas Investment Management Co. took delivery of nearly $1bn of gold bullion into a New York vault. The reason gold analysts were so interested was because large institutional players had been largely absent from their market and their huge purchasing power had therefore not had its potentially significant positive effect on the gold price.


The gold purchase by America’s second largest academic endowment was noted in case it was the start of a trend. Nonetheless, continued institutional bids into the gold market did not follow in great enough numbers to identify a compelling trend. Apart from last summer’s run to over $1,900/ounce, the gold price has not hinted at notably increased institutional buying of gold. Gold investors were left waiting and wanting.

However, the Financial Times reported some interesting news for those monitoring such a trend yesterday.

Okayama Metal & Machinery has become the first Japanese pension fund to make public purchases of gold, in a sign of dwindling faith in paper currencies. Initially, the fund aims to keep about 1.5 per cent of its total assets of Y40bn ($500m) in bullion-backed exchange traded funds, according to chief investment officer (CIO) Yoshisuke Kiguchi, who said he was diversifying into gold to “escape sovereign risk”.

Pension funds and gold bullion

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.

The fund’s aforementioned CIO appears to have talked his investment committee into a long term wider view of asset allocation. Mr Kiguchi had made the case that a lack of yield needed to be balanced against currency and default risk. Loose monetary policies and the durability of fiat currencies seemed to be on his mind when he commented: “from a very long-term point of view, gold may be one of the safe currencies”.

This point about long term asset allocation is one that has been articulately made previously by Ben Davies of Hinde Capital. Mr Davies and Hinde Capital have also been observers of Japan’s potential in the gold market, and according to the FT, this potential may be morphing from latent demand into patent demand.

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.”

This news and sentiment out of Japan suggests further evidence of declining trust in fiat currencies to us, but is a wider trend of growing institutional demand for gold appearing?

Whales and the gold market

Recent SEC filings, reported by ZeroHedge, show other institutions participating in the gold market. Most of these names are familiar to gold market observers but some of them appear to be increasing their participation whilst others are new buyers.

Eton Park Capital, Paulson and Co., PIMCO, Soros Fund Management, and the Teacher Retirement System of Texas all bought shares of the world’s largest gold exchange traded fund (ETF), known by its ticker of GLD, in the first quarter of 2012.

Within this Soros quadrupled his gold investment position compared to the previous quarter, PIMCO and the Teacher Retirement System of Texas were also net buyers, whilst Eric Mindich’s Eton Park Capital was a new buyer with a purchase of 739,117 shares, having held no position in GLD at the end of 2011.

Large buyers need liquid gold products

It is also worth noting the size of some of this participation. Investment by Okayama Metal & Machinery of $500m and Eton Park Capital of $110m is larger enough for these buyers to need a highly liquid gold investment solution.

Institutions that need to invest in regulated securities tend to look towards the largest ETFs, like GLD, as only these products are liquid enough to handle their buying and selling without inordinately affecting the price. This can be especially relevant for some pension funds that may be unable to take delivery of physical bullion as the University of Texas Investment Management Co. and David Einhorn’s hedge fund, Greenlight Capital, did.

Eric Sprott’s Physical Gold Trust and the Central Fund of Canada might be a structurally superior means of achieving gold, or precious metals ownership, but at the time of writing the Sprott Trust’s Net Asset Value (NAV) was less than $2.2bn and the Central Fund’s NAV was less than $4.8bn. This is compared to GLD’s current NAV of $63.5bn. Whales sized gold buyers need deeper liquidity and, regardless about opinions as to its suitability for gold investment, GLD has it.

Whilst the above institutional action in the gold market might not point to a firm trend of hot institutional activity it is worth paying attention to. Trends have to start somewhere, and whilst gold is not significantly held by institutions generally, the motivating concerns mentioned by Okayama Metal & Machinery’s CIO might be held more widely across the industry.

The move into gold by Okayama Metal & Machinery should be looked at in the same light as the University of Texas Investment Management Co.’s gold investment last year. For now we just hear a slow dripping sound as financial glaciers melt and capital begins to look for more secure homes and better collateral.

Central banks and pension funds buying gold bullion. Invest in gold like a professional in minutes…

Will Bancroft

For The Real Asset Company.

http://therealasset.co.uk

Aside from being Co-Founder and COO, Will regularly contributes to The Real Asset Company’s Research Desk. His passion for politics, philosophy and economics led him to develop a keen interest in Austrian economics, gold and silver. Will holds a BSc Econ Politics from Cardiff University.

© 2012 Copyright Will Bancroft - All Rights Reserved
Disclaimer: The above is a matter of opinion provided for general information purposes only and is not intended as investment advice. Information and analysis above are derived from sources and utilising methods believed to be reliable, but we cannot accept responsibility for any losses you may incur as a result of this analysis. Individuals should consult with their personal financial advisors.


© 2005-2019 http://www.MarketOracle.co.uk - The Market Oracle is a FREE Daily Financial Markets Analysis & Forecasting online publication.


Post Comment

Only logged in users are allowed to post comments. Register/ Log in

6 Critical Money Making Rules