July 16, 2010, 3:18 AM EDT

July 16 (Bloomberg) -- Assets held in Japan’s first exchange-traded funds backed by gold and other precious metals may increase eight-fold in a year as investors seek to protect their wealth in the country with the world’s biggest public debt, its largest publicly traded bank said.

ETFs backed by gold, silver, platinum and palladium stored in Japan may hold as much as 30 billion yen ($337 million) in July next year, from the initial 3.5 billion yen, said Osamu Hoshi, deputy general manager at Mitsubishi UFJ Trust and Banking Corp., a member of Mitsubishi UFJ Financial Group Inc. The yen-based funds from the bank were listed on the Tokyo Stock Exchange on July 2.

Concern that Europe’s sovereign debt crisis would spread sent gold to a record high of $1,265.30 an ounce on June 21. Japanese individuals with combined financial assets of 1,453 trillion yen, as well as institutional investors, may shift some of their money into physical metals as a store of value, he said. Public debt in Japan amounts to $80,000 a person.

About 10 million people who have accounts in securities houses in Japan for trade in equities and bonds will now have access to physical metal markets, Hoshi said. Bullion for immediate delivery was little changed at $1,207.05 an ounce at 4:11 p.m. Tokyo time.

Gold held by exchange-traded products advanced to an all- time high this year and coin sales from mints accelerated as investors sought to protect their wealth. Gold ETF inflows surged more than 11-fold in the U.S. and Europe to $11.6 billion in the second quarter, according to Deutsche Bank AG.

Popular Investment

“Owning physical gold has become popular among individual investors,” said Paul Yamamura, a Tokyo-based trader with Sumitomo Corp. “It appears difficult though for demand to grow at that pace because it will take time for people to take a serious look at the market. Traditionally, people don’t like to invest in commodities in Japan.”

The products may also attract pension funds and other institutional investors seeking alternative investments, Hoshi said. According to data from the Bank of Japan, assets held by insurance companies and pension funds reached 466 trillion yen as of March 31.

Investment in commodities represented 0.13 percent of assets managed by Japan’s corporate pension funds in the year ended March 31, 2009, data from Pension Fund Association show.

Mitsubishi Corp., Japan’s largest trading company, supplies the metals to the ETFs through imports or recycling. The products can be exchanged with bars of at least 1 kilogram in Japan. They are linked to precious metals futures prices on the Tokyo Commodity Exchange, Japan’s largest raw material bourse.

Itsuo Toshima, regional director in Tokyo of the World Gold Council, a producer-funded group, said they recommend Japanese institutional investors increase gold allocation to as much as 5 percent of their assets for diversification.

Bonds to Gold

“Institutional investors who put a large part of their funds into the Japanese government bonds are showing interest in gold investment,” Toshima said by phone.

Japanese investors were net sellers of gold in 2009 for the fourth straight year, amid higher prices. The volume of sales reached 30.8 metric tons last year, from 39.4 tons in 2008, according to London-based research company GFMS Ltd. Gold has gained 10 percent this year, heading for a 10th straight annual increase, the longest run since at least 1920.

Net gold exports by Japan fell 9.6 percent to 54.7 tons last year from 2008, when yen-based retail prices of bullion reached 3,339 yen per gram, the highest level since 1983, according to Japanese bullion house Tanaka Kikinzoku Kogyo.

The Tokyo Stock Exchange, Japan’s largest securities bourse, also lists precious metal ETFs from London-based ETF Securities and SPDR Gold, the biggest fund backed by bullion. The Osaka Securities Exchange lists fund managed by Nomura Asset Management that invests in gold-linked bonds.

--With assistance from Kyoungwha Kim in Singapore. Editors: Jarrett Banks, Jake Lloyd-Smith

To contact the reporter on this story: Aya Takada in Tokyo atakada2@bloomberg.net Yasumasa Song in Tokyo at ysong9@bloomberg.net.

To contact the editor responsible for this story: James Poole at jpoole4@bloomberg.

http://www.businessweek.com/news/2010-07-16/gold-etf-assets-to-expand-in-japan-mitsubishi-says.html