Japanese Safe-Haven Demand Finally Kicks In

Initially, safe-haven buying did kick in after the tsunami struck Japan. But just afterwards, the yen was the beneficiary of safe-haven buying to gold's detriment. As a result, a plummet struck the metal last Tuesday. Now, though, safe-haven buying by Japanese is coming back thanks to the G7 intervention to push down the yen. That's had the effect of sending premiums on 1 kg bars to three-year highs.

Investors in Japan dived into yen-denominated markets such as TOCOM gold after concerted intervention by the G7 group of nations weakened the currency against the dollar last Friday, a day after the yen rose to a record high of 76.25.

"If the dollar/yen stabilizes and a clear trend emerges that the dollar has hit a bottom against the yen, then that may spur gold buying from households looking to get bullion cheaply," said Koichiro Kamei of financial research firm Market Strategy Institute, adding that the G7 action could also lift the international gold market.

But, there's another wrinkle that would reverberate all over the Asian market. If the Japanese appetite for the metal keeps picking up, then Japan's net exports will be squeezed leading to supply shortages all over the region. In Japan itself, premiums for wholesale gold bars are at $2/oz. Before the earthquake, they were at zero.

Seemingly, the premium jump has been caused by dealers stocking up in anticipation of a retail buying surge. Japanese retail owners were net sellers of gold last year, making them a notable laggard in this bull market. If that changes, it would be a milestone.