Investing Smartly in Gold with NISA, Seizing Opportunities in its Unwavering Price Surge | FRIDAY DIGITAL

Investing Smartly in Gold with NISA, Seizing Opportunities in its Unwavering Price Surge

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The skyrocketing of gold that overturns conventional wisdom

Since the beginning of April, the price of gold has reached new highs both at home and abroad, and it shows no sign of abating. Since the beginning of April, the price of gold in Japan and overseas has reached new highs every day, with no sign of slowing down at all. In this article, we will explore the background of this rising market, and experts will explain how you can invest in gold with NISA.

Gold is at the center of the topic in overseas financial markets

While the afterglow of the Nikkei Stock Average reaching its highest level in 34 years is still lingering in Japan, the gold market is the main topic of conversation in overseas financial markets. Since last year, the price of gold has been on an upward curve in an almost unbroken line, and since the beginning of this year, the price has been rising to higher and higher levels one after another. The New York gold futures price, the international benchmark, hit the $2,300 per troy ounce (=31.1035 grams) level on April 3. The retail price in Japan is also moving in the 12,000 yen per gram range.

The main reason why gold is attracting attention today is not only the speed of its rise, but also the fact that it is soaring, defying all conventional wisdom.

It has been referred to as crisis gold (PHOTO: Afro)

A real asset that never loses its value

Traditionally, gold has been called contingency gold and has been preferred by investors as a safe asset. The term contingency gold means that gold is more likely to be purchased as an asset in the event of an emergency such as war, a large-scale disaster, or a global economic crisis. In the case of paper assets such as stocks and bonds, their value may decrease significantly if the company or country that issued them is in crisis. Gold, on the other hand, is a real asset that has value in itself and will not lose its value.

In fact, since 2000, gold has been the only asset that has not lost its value in the aftermath of a crisis, such as the terrorist attacks in the U.S. in 2001, the Lehman Shock in 2008, the pandemic of the new coronavirus in 2008, and Russia’s invasion of Ukraine in 2022. Gold has been bought in every emergency.

Gold in times of crisis is a thing of the past!

However, the current rise in the price of gold is not due to the fact that we are in an emergency. Indeed, the future of Russia’s invasion of Ukraine remains uncertain, and the Israeli-Palestinian conflict is intensifying in the Middle East. At first glance, the world economy and financial markets appear to be in a state of emergency, but a sober look reveals that the world economy and financial markets are not in turmoil. On the contrary, global stock prices and the dollar continue to rise.

It has been a common belief that gold as an asset is, in textbook terms, inversely correlated with the price movements of stocks and the dollar. Inverse correlation means that the price movements are opposite, which is why gold has been bought in times of emergency when stocks and the dollar decline.

However, since around 2022, gold has become forward correlated, meaning that its price movements follow the same trend, and it has continued to rise at a faster pace than stocks and the dollar. This is why gold has attracted so much attention in the financial markets.

The overseas price is the “LBMA Gold Price,” an international benchmark for the physical price. The domestic price is the “LBMA gold price” converted into yen (prepared by the author).

The Global “Money Glut” Behind Rising Gold Prices

Why, then, has gold become correlated with stocks and the U.S. dollar, repeatedly reaching new highs under less than contingent conditions? Of course, many factors are involved, but there is one thing that seems to be of critical importance: the increase in the monetary base. That is the increase in the monetary base. The monetary base is the amount of money supplied by the central bank.

Let’s take a look at the monetary base of the Fed, the most influential central bank in the United States. The monetary base, which had been increasing in line with the economic growth rate, suddenly began to expand rapidly in September 2008. The trigger was the Lehman Shock. In order to cope with the credit uncertainty and economic crisis caused by the Lehman Shock, a large amount of money was supplied to the financial markets.

Since then, dollars have been issued every time a similar situation occurs, and in March 2020, an unprecedented amount of money was supplied as a policy response to the new coronavirus pandemic. As a result, the Fed’s monetary base swelled to about $6.4 trillion in December 2021.

The Fed’s monetary base suddenly began to expand rapidly after the “Lehman Shock” in September 2008, and by December 2009 it had grown to approximately $6.4 trillion.

This is not limited to the Fed. Japan, the EU, China, and other central banks have also been aggressively increasing their monetary bases as part of their economic and monetary policies. As of March 31, 2024, Japan’s monetary base stood at 666 trillion yen, a record high. This unprecedented “money glut” is thought to have led to a massive inflow of funds into the gold market as well as the stock market.

The expansion of the monetary base also has an inflationary effect on the real economy, which in itself is a reason to buy gold. Since inflation depreciates the value of money, gold, a real asset, is more likely to be bought. This is why gold is said to be resistant to inflation.


China’s Booming Purchase of Gold

One prominent buyer of gold in concrete terms is undoubtedly China. Since the 2010s, central banks, particularly those of emerging countries, have been increasing their gold holdings, with China and Russia actively acquiring gold. In particular, the People’s Bank of China, China’s central bank, reportedly purchased a record-high of 225 tons in 2023, according to a report by the World Gold Council, an international gold industry organization.

The purchases of gold by China and Russia as nations are believed to be aimed at reducing reliance on the US dollar, the world’s reserve currency. As political tensions with the United States escalate, this trend is strengthening year by year.

Moreover, individual gold purchases are thriving in China. China has always been a major consumer of gold, valued not only for jewelry but also for investment purposes such as bullion. Added to this, serious real estate downturns and stock market declines have coincided, fueling the popularity of gold as an asset among individual investors. In 2023, demand for jewelry in China reached 630 tons, while demand for investment-grade bullion and gold coins amounted to 280 tons, totaling 910 tons.

As a result, China’s government and individual gold purchases totaled 1,135 tons, accounting for approximately 31% of the world’s annual production mined from mines worldwide, which was about 3,644 tons last year. China’s buying spree is supporting the gold market (data from the World Gold Council).



You can also buy gold with NISA.

For those who are considering investing in gold, here are some gold-related financial products that can be purchased with a NISA account.

Aside from individuals with ample surplus assets that can be invested in gold, accumulation investment would be a safe bet considering the high volatility of the gold market. If this is the case, an index fund linked to the gold price would be an option. The following is a list of funds that can be purchased under the “Growth Investment Limit” of the NISA.

You can also buy “gold” with NISA.

For those who are considering investing in gold, here are some gold-related financial products that can be purchased with a NISA account.

Aside from individuals with ample surplus assets that can be invested in gold, accumulation investment would be a safe bet considering the high volatility of the gold market. If this is the case, an index fund linked to the gold price would be an option. The following is a list of funds that can be purchased under the “Growth Investment Limit” of the NISA.

Gold price-linked index funds that can be purchased with the NISA “Growth Investment Limit

The four funds listed here are all no currency hedge types. The domestic gold price is a yen equivalent of the price displayed in dollar terms” in overseas markets. Therefore, the price will be lower when the yen appreciates and higher when the yen depreciates. By choosing no currency hedging, you can prepare for the risk of a weaker yen in the future. Considering the asset-preserving nature of gold, it is preferable to hedge against the risk of a weak yen.

All four contracts use the LBMA gold price as their benchmark. All four mutual funds are index funds linked to the LBMA gold price (yen equivalent basis).


ETFs are also an option for advanced investors

ETFs are a type of investment trust listed on an exchange and can be traded on the market at any time, just like stocks. Some of these ETFs are linked to the price of gold and can be purchased through the NISA Growth Account. These include the SPDR Gold Shares, NEXT FUNDS Gold Price Linked Exchange Traded Fund, and the Pure Gold Exchange Traded Fund (physical domestic custody type).

However, when investing in ETFs, you need to do it manually except for some brokerage firms.

You have to place your own monthly orders. In addition, if you value low cost (investment management cost), you can use overseas ETFs. There are foreign ETFs that are linked to gold and can be purchased with a growth investment limit. This is an area for advanced investors to compare with various costs, but it may be worth considering.


What is the appropriate ratio of gold assets?

So, how much gold should be included in your assets? Traditionally, it has been suggested to allocate around 10-15% of your total assets to gold. The rationale behind this recommendation often cites the fact that gold comprises about 10% of the foreign currency reserves of various governments. However, currently, it is considered advisable to aim for around 5% (Foreign currency reserves refer to readily usable external assets under the control of a country’s central bank, utilized during foreign exchange interventions, among other purposes).


As mentioned earlier, in the past one to two years, gold has exhibited positive correlation with stocks and the dollar. With the diminishing effectiveness of diversification, there is an increased likelihood that if stocks or the dollar decline, gold may also decline. If gold prices demonstrate downward rigidity when stocks or the dollar fall, reaffirming its strength in bear markets, it might be worth considering accumulating more gold at that time. For reference, as of the end of March 2024, gold accounts for 4.7% of Japan’s foreign currency reserves according to the Ministry of Finance.


Additionally, unlike popular NISA index funds such as “All Country” (Orukan), gold-related index funds do not pay dividends. Since dividends cannot be reinvested, for long-term investments, it’s important to note that the efficiency of these funds may be lower compared to those that do pay dividends.


Furthermore, the gold market from last year to this year has been driven not only by actual demand but also by investment companies known as hedge funds, particularly those specializing in commodity futures, such as firms labeled as “CTAs”. These hedge funds conduct large-scale and high-speed trading, increasing price volatility. It’s worth repeating that starting with small, regular investments is a prudent approach.

  • Interview and text by Kenji Matsuoka

    After working as a money writer, financial planner, and market analyst for a securities company, Matsuoka became independent in 1996. He writes articles on finance and asset management mainly for business and economic magazines. Author of "A Textbook for the First Year of Robo-Advisor Investing" and "Understanding with Rich Illustrations! A book that will definitely benefit you with cashless payment".

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