Wednesday, December 07, 2011

Japan to Offer Gold Coins to Debt Investors

From the Bloomberg/Businessweek

Japanese Finance Minister Jun Azumi will be rewarding investors who buy reconstruction bonds with half an ounce of gold, an added incentive that could boost the return by nearly six times.

Individual investors who purchase more than 10 million yen ($129,000) in the debt with a 0.05 percent return and keep it for three years will receive a gold commemorative coin weighing 15.6 grams (0.55 ounces), the Finance Ministry said in Tokyo today, worth about $948 based on current prices for the precious metal.

The offer suggests the return could be boosted to 89,000 yen should gold prices remain at current levels, more than the approximate 15,000 yen one would receive from the bond. Azumi, whose hometown was devastated by the March 11 disaster, said today he bought 1 million yen of the debt to support rebuilding efforts from the earthquake and tsunami.

This can be viewed as tokenism—reward for not only buying government debt (thereby keeping politicians happy) but for also keeping them.

Even at the margins, such symbolism may be seen as enhancing gold’s image as safehaven asset. Yet this could serve as more evidence where gold will likely be used as prospective collateral for government/corporate debt issuance.

Lastly, with the rate of currency debauchery being undertaken by global central backs which includes the Bank of Japan, it would not be surprising that the current price differential of the gold 15.6 grams coin ($948) and the 10 million yen debt ($129,000) will most likely narrow overtime.


Chart from

Prices of gold based on the yen has more than doubled over a decade.

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