After Europe and Japan enacted negative interest rate policies, overseas investors have steered toward gold bullion to protect their wealth against depreciating currencies. U.S. investors can also capitalize on this growing trend with gold-related exchange traded funds priced in euro and yen currency terms.
Gold sales in Japan jumped in March after the Bank of Japan’s move to set negative interest rates sent investors to alternative assets, reports Masumi Suga for Bloomberg.
Gold bar sales rose 35% to 8,192 kilgrams in the first quarter year-over-year, Tanaka Kikinzoku Kogyo K.K., the country’s biggest bullion retailer, said in a statement.
In an attempt to stimulate the economy through lending, dozens of countries have cut policy rates below zero. However, the negative interest rate policies, or NIRP, have increased demand for bullion as it is not an interest-bearing asset.
Andrea Lang, director of marketing and sales at the Austrian Mint, also pointed out that Europeans are acquiring gold as a haven in response to negative rates.
The move has benefited investors in the past as gold has outperformed in low-rate environments.
“History shows that, in periods of low rates, gold returns are typically more than double their long-term average,” the World Gold Council said in a recent report. “Over the long run, negative interest rate policies may result in structurally higher demand for gold from central banks and investors alike.”
Consequently, as negative rates in Europe and Japan drag on their respective currencies, gold will look more attractive to both regions’ investors. However, some bullion strategists warn that a strengthening U.S. dollar could cap gold gains.
On the other hand, ETF investors can utilize euro- and yen-denominated gold ETFs to capture bullion moves while the dollar strengthens. For example, the AdvisorShares Gartman Gold/Euro ETF (NYSEArca: GEUR) is an actively managed ETF that tracks gold in euro terms. The AdvisorShares Gartman Gold/Yen ETF (NYSEArca: GYEN) tracks gold in yen terms.
[related_stories]Both GEUR and GYEN and “offer investors an alternative method to invest in gold by financing gold purchases in liquid currencies other than the U.S. dollar,” according to AdvisorShares.
The Gold/Euro and Gold/Yen ETFs utilize exchange-traded currency futures or “over-the-counter” foreign exchange forward contracts with maturities under six months to borrow their respective currencies to fund the gold purchases.
Gold in Japanese yen terms has gained 5.2% to JPY4,285 per gram year-to-date while gold in euro terms has increased 11.2% to EUR1,088 per troy ounce.
Year-to-date, GEUR was up 13.4% and GYEN was 7.8% higher.