7 Jan 2004 21:55 ET DJ Japan Gold Demand To Stumble Before Hitting Stride In '04
By Jim Hawe
Of DOW JONES NEWSWIRES
TOKYO (Dow Jones)--Japanese gold demand could stumble in early 2004 amid sluggishness in the jewelry and investment sectors, but market participants say concerns about the nation's wobbly financial system should help the market find its legs again later in the year.
The most recent data compiled by Gold Fields Mineral Services shows that Japanese consumer demand for gold during the July-September quarter of last year slumped 40.7% on-year to 17.8 tons with net retail investment tumbling 55.9% to 7.5 tons.
This sluggishness continued into the October-December period and will likely spillover into the first half of 2004, said Itsuo Toshima, Japan-Korea regional director for the World Gold Council.
"The main characteristic of the Japanese gold market in 2003 was a very active two-way market," Toshima said. "While it is true that more Japanese have been investing in gold, more have also been selling it."
The roughly 18% surge in the gold price in 2003 has tempted many Japanese gold hoarders to sell back part of their cache, thus pulling down net retail investment.
"Those that bought gold just five years ago at around 1,000 yen (per gram) can now get a handsome profit by selling it back at well over 1,400 yen," Toshima explained.
Gold was quoted at Y1,491/gram Thursday morning in Japan.
Demand for gold jewelry in Japan has also been falling as poor economic conditions and an uncertain job market put purchases of gold jewelry and other luxury items on hold.
The World Gold Council's Toshima says that cheaper "white gold" has been gaining in popularity to the detriment of the pure gold adornments.
Still, Toshima is "cautiously optimistic" that Japan's gold jewelry market can regain some of its lost luster later in 2004.
"Demand for gold jewelry in 2004 could be up or down by 10%. It will all depend on the state of the economy," he said.
Financial System Jitters To Shake Up Gold Demand In 2H
On Christmas Eve last year some yet-unknown prankster began spreading a rumor via cellular phone e-mail that regional lender Bank of Saga Ltd. (8395.TO) would go bankrupt within two days.
Bank officials quickly denounced the rumor as groundless and malicious. Top government officials even stepped in to proclaim that the bank was sound and in no danger of going under.
Still, hundreds of depositors lined up in front of Bank of Saga ATM machines the next morning to withdraw their savings.
This run on the Bank of Saga, on nothing more than a vague rumor, underscores a growing lack of confidence among the Japanese in their financial system after the government had to rescue two major banks last year.
Some are saying that a fear of more bank failures is creating an environment where safe havens like gold can flourish.
Tamisuke Matsufuji, president and CEO of Jipangu Inc., Japan's largest gold investment firm, said gold should remain a popular investment choice among the Japanese as the government still hasn't seriously addressed the mountains of bad loans and other long-standing problems crippling the nation's financial sector.
"These problems have not been solved and so such worries will of course continue," he said.
The World Gold Council's Toshima said that this anxiety could become much more prevalent from around June as investors will likely begin preparing for the lifting of blanket guarantees on bank deposits in March 2005.
The loss of full government guarantees on bank deposits is expected to spark an exodus of funds from weaker banks.
The bulk of this money will likely simply be moved to stronger banks, but a portion could find its way into other investment vehicles. And gold could be a natural choice for the traditionally conservative Japanese investors.
Strong Yen May Pump Up Gold Demand
The other major factor aiding demand for gold this year will be a rising yen.
Jipangu's Matsufuji sees no end in sight to the recent sharp appreciation in the yen against the U.S. dollar.
"We should eventually see the dollar dropping to 100 yen, maybe even 80 yen if there is no more intervention," he said.
The World Gold Council's Toshima believes that such a development would be a bonanza for Japanese gold demand.
"Investment demand will definitely increase if the dollar falls under 100 yen," he said.
Toshima explained that while U.S. investors are seen as "momentum investors" that tend to buy into rallies, Japanese investors tend to be "value buyers" that look for good bargains. And a stronger yen would make dollar-denominated gold a better buy in terms of the local currency.
"If the dollar falls below 100 yen, we could come close to seeing something of a new gold boom in Japan," Toshima said.
Toshima declined to make any forecasts for 2004 on gold demand or prices.
However, Jipangu's Matsufuji, an unabashed gold bull, had no such reservations.
"I see gold at $480 by the end of the year - $600 if the Dow tanks," he said.
-By Jim Hawe, Dow Jones Newswires; 813-5255-2950; jim.hawedowjones.com
(END) Dow Jones Newswires
January 07, 2004 21:55 ET (02:55 GMT) |
