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Japanese Investors Stock Up on Gold - 2002-05-03

Uncertain about their economy, and worried about the reliability of Japan's banks, some Japanese investors are stocking up on gold. Many Japanese view the precious metal as a hedge against financial uncertainty.

Tanaka Kikinzoku, Tokyo's largest gold retailer, is a busy place these days. The business sits in a non-descript neighborhood, and its customers are ordinary looking people of all ages, dressed casually so as not to attract attention. They arrive with large wads of bills stashed in their wallets. They leave with heavy gold bars piled in knapsacks and weighing down coat pockets.

Gold sales at Tanaka Kikinzoku have jumped dramatically in recent months, as they have at other Japanese gold dealers. In the first three-months of 2002, imports of gold for purposes other than making coins jumped seven-times from the same period last year. The reason: economic insecurity.

Osamu Ikeda, Tanaka Kikinzoku's secretary, says the store's customers, who range in age from 20 to 60, buy up to 10-bars of gold each at a cost of $10,000 a bar.

This is by no means the first time that Japanese investors have turned to gold. In fact, the cash-rich Japanese, with an average savings of $100,000 per household, have been known to invest in gold when its price is low.

Mr. Ikeda says that people previously bought gold to turn a profit, but in this latest gold rush investors want to hold solid assets to feel more secure.

Around the world, gold is trading near a two-year high and some optimistic analysts are suggesting it could rise five-percent more in the coming months. Concerns about the timing of a U.S. economic recovery and the conflict in the Middle East are the main factors behind the rally.

Itsuo Toshima is the regional director of the World Gold Council in Japan. He says that these events are also influencing Japanese buyers, whose trades make up just a small fraction of overall worldwide gold sales. "The current gold buying wave was touched off on September 11 last year, as a result of the terrorist attacks in New York and Washington," he says. "At that time, the value of traditional assets and the U-S dollar fell quite dramatically, while at the same time the price of gold rose sharply."

Domestic concerns also are driving Japanese investors to gold shops. The value of the Japanese currency has declined about 18-percent in the past two-years. The country's volatile stock market is considered unattractive by small investors. Many Japanese are steering clear of corporate bonds since the collapse of Mycal, a major retailer, late last year.

Widespread worry over the country's debt-ridden banks also is a factor. In April, Tokyo ended its policy of unlimited insurance on bank deposits as part of a series of banking reforms. The government now restricts deposit insurance to about $75,000.

That has unnerved many Japanese, who keep about half of their savings in bank accounts. In addition, the Japanese government has urged some troubled banks to start bankruptcy proceedings, helping send investors looking for more desirable places for their cash. Compared to the expected outflow from bank deposits, Japan's gold buying trend is minor. But Japanese savings are so large that even a relatively small shift to gold boosts the mining industry.

Analysts are divided on the future of the Japanese gold-buying trend. While statistics for April are not yet available, some metal traders say that the enthusiasm has slowed a little from its peak about six-weeks ago. But others expect gold consumption to grow at an even faster rate as the Japanese government makes further cuts to its insurance coverage for bank deposits next year.