Investor enthusiasm for gold has propelled Japan's largest physical gold ETF to record highs, surpassing the value of its underlying assets, which underscores the potential risks faced by investors in a volatile market. Earlier this week, Japan's only domestic storage-backed gold ETF saw its premium relative to net asset value (NAV) reach as high as 16%. Despite the Tokyo Stock Exchange alerting investors about the fund's net value last Friday, the ETF continues to trade at elevated premiums. Compounding market worries, spot gold prices plummeted by over 6.3% on Tuesday, prompting some analysts to warn of a potential reversal in the ETF's upward trend. Satoru Yoshida, a commodities analyst at Rakuten Securities, cautioned that if the gold market continues to weaken, "retail investors may collectively sell off," increasing the risk of significant losses. Following the steep drop in spot gold prices, the ETF saw its value decline by as much as 11% on Wednesday. Data shows that the premium of this ETF, valued at approximately 12.5 trillion yen (around $82 billion), has surged to the highest level among similar global funds. In contrast, comparable international physical gold ETFs—such as the Goldman Sachs Physical Gold ETF, Abrdn Physical Gold ETF, and BlackRock iShares Physical Gold ETF—have never deviated more than 4% from their net value over the past decade. Kei Okazaki, Senior Manager of the ETF Market Development Division at the Tokyo Stock Exchange, noted, "The decreasing correlation between ETF prices and the gold market, coupled with the phenomenon of investors buying at high prices, is indeed concerning." However, some analysts believe that, in the longer term, the overall bullish trend for gold will continue to support the performance of Japan's physical gold ETF. By Wednesday afternoon, the fund's decline had swiftly narrowed to about 7%. This unusual trading activity reflects a recent surge in interest among Japanese retail investors in gold, also driven by yen depreciation and domestic retailers suspending gold sales. Some analysts point out that these factors have accelerated the inflow of funds into gold ETFs. Satoru Yoshida from Rakuten Securities indicated that the yen's depreciation is leading investors to expect higher returns from gold priced in dollars. Notably, the fund's popularity is partly due to the ability of investors to exchange their ETF shares for physical gold by paying a certain fee. When the trading price of Japan's gold ETF exceeds its NAV, the issuer, Mitsubishi Corporation, purchases physical gold, while brokerages sell newly established fund shares, typically narrowing the premium. However, a representative from a Mitsubishi subsidiary responsible for precious metals procurement stated that, although the company is sourcing gold from both domestic and international markets, it is currently "challenging to keep up with soaring demand and rapidly rising prices." Satoshi Harada, a researcher at NLI Research, noted, "As retail investors still find it difficult to directly access physical gold, there are currently no signs that the price and NAV of the ETF will quickly converge."