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Japan: Central Bank Adds Liquidity - Pension Funds Buy Gold

Release Date: 
Thursday, December 20, 2012

The U.S. economy grew at a seasonally adjusted rate of 3.1%in the third quarter. Profit-taking also affected gold prices: "There has been liquidation ahead of year-end," said Simon Weeks, head of precious metals at Scotia Mocatta.

The Bank of Japan announced its third round of monetary stimulus on Thursday, expanding its asset-buying and lending program by 10 trillion yen ($119 billion) to 101 trillion yen, in a widely expected move. Prime Minister elect Shinzo Abe said he wants the central bank to employ "unlimited easing measures" to achieve a 2% inflation target. 

Pension funds in Japan are starting to invest in gold for the first time to soften the effect of possible market shocks. Japan’s money managers are concerned that higher inflation could drive up interest rates and erode the value of the Japanese government bonds in which pension funds have invested most of their money.  "Responding to inflation is becoming one issue," said Hiroaki Nakaoka, of State Street Global Advisors in Japan. 

In March 2011, Mizuho Trust & Banking Co. started incorporating gold in a package product for pension funds that invests in various assets. Gold accounts for about 3% of the package. The product has attracted 180 yen billion in investment from about 200 pension  funds.

(Sources:  “Under pressure from Abe, Bank of Japan boosts stimulus again,” Reuters, December 20, 2012; “PRECIOUS-Gold below $1,650/oz, down 1.3 pct on fund selling,” Reuters, December 20, 2012;“Gold Futures Decline to Lowest Since August on U.S. GDP Report,” Bloomberg, December 20, 2012; “Gold, silver futures sink as fiscal talks stall,” Marketwatch, December 20, 2012; “Japanese Pension Funds Seek Safety in Gold,” Wall Street Journal, December 18, 2012)

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†This material has been prepared for private use. Although the information in this commentary has been obtained from sources believed to be reliable, Goldline does not guarantee its accuracy and such information may be incomplete or condensed. The opinions expressed are subject to change without notice.

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