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

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.

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.