Gold Coins Offer to Buyers of Japan Reconstruction Bonds

JAPAN'S finance minister has said investors who buy reconstruction bonds next year will receive Gold Coins. Japan plans an auction of the bonds – designed to raise funds towards rebuilding areas devastated by this year's tsunami – in March 2012.

Investors who buy more than ¥10 million worth of bonds – and hold them for three years – will be eligible to receive commemorative Gold Coins, finance minister Jun Azumi said Tuesday.

Those who own more than ¥1 million, meantime, will be eligible for Silver Bullion coins.

Each of the Gold Coins will weigh approximately 0.55 troy ounces – worth around ¥66,000 ($940) at current bullion prices.

There have been recent suggestions gold from official reserves might be offered as collateral against European government borrowing. Last month, the European Council published a discussion paper suggesting that jointly issued 'Eurobonds' might be partially collateralized with gold or other assets.

However, there are a number of problems with the idea argues US precious metals consultancy CPM Group, pointing out that an outright sale of gold would miss the real issue.

"It would not make financial sense to sell part of a nation's capital stock to cover a current account deficit or debt," says CPM Group's latest research note. 

"The deficits must be addressed before the debt issues can be resolved, and, indeed, solving the deficit problems is the basis for resolving the debt issues."

CPM Group also puts forward another objection.

"One could argue that using the gold as collateral against loans might make sense instead of outright sales, but this idea runs into the second, more pragmatic issue...the value of [government] gold holdings is miniscule compared the size of their debt. The United States holds 261 million ounces of gold worth around $444 billion at current prices."

Selling all this gold, CPM notes, "would pay for roughly one quarter's worth of deficit, after which the US government would still be facing massive deficits, its debt would not have been reduced at all, and it would not have any gold reserves left."

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