Recent S&P Downgrade Of Japanese Government Debt May Spur Gold Sales In Japan

Although the current gold-buying clime isn't very sunny, at least ostensibly, there is some hope that the S&P downgrade of Japanese government debt from AA to AA- will prompt Japanese investors to add some gold to their holdings.

Analysts and bullion house officials said the ratings cut will not cause an immediate, visible shift in the behaviour of Japanese households, which typically view gold as a tool to make profits from, rather than as a currency alternative or a safe-haven asset.

"It's not realistic to think the S&P move will prompt a change in Japanese perception of gold, namely as a way to earn interest, and not a risk management tool," said Naohiro Niimura, a partner at Tokyo-based research and consulting firm Market Risk Advisory Co.

With Japanese household assets at some $17 trillion, there is low risk of Japan defaulting as the government has a huge pool of domestic deposits to fund its debt issuance. This prevents a sense of urgency growing among investors, analysts said.

But as the country's investor base diversifies and as fiscal reform is not expected to yield anything effective in the near-term, Japanese household selling of gold could slow this year, reducing Japan's net exports of the yellow metal, even if prices rise.

And some retail investors could be tempted to buy.

Like in America, gold investment in Japan is far from the mainstream. So, the penetration of gold into retail hands is likely to be limited by the news. Already, though, the rate of selling gold has slowed - suggesting that holders increasingly expect prices to rise further.