For Eriko Ebina, standing outside a downtown Tokyo medical equipment store that has a side business buying gold, the recent surge in prices for the precious metal was just too tempting.

For more than 30 years, I kept gold jewelry mother bought for me, and with media saying prices are high, I thought I would sell them now except for a few keepsakes from her, said Ebina, in her 60s.

I earned more than I thought they were worth. I'm not interested in buying gold.

It is sellers like Ebina who will offset surging investment into gold funds in Japan, which should make the country a net exporter for the sixth year in a row.

The assets of Mitsubishi UFJ Trust and Banking Corp's physical gold exchange traded fund (ETF), Japan's first backed by metal stored in the country, have grown by a quarter since end-July to 21.8 billion yen ($284.9 million) as of August 23.

Investors are seriously treating our gold ETF as a legitimate asset class, just like investing in equities, bonds and currencies, said Osamu Hoshi, deputy general manager at Mitsubishi UFJ Trust.

They see a need to diversify their assets after seeing volatile moves in currencies and stocks and others, Hoshi said.

A downgrade of the U.S. sovereign debt rating amid a deteriorating outlook for the world's largest economy, as well as a spreading European debt crisis, have triggered a rush to gold that has boosted prices by 14 percent this month.

Inflows have become especially big this month as fears over both the U.S. dollar and the euro have intensified, said Ryosuke Okazaki, chief investment officer at ITC Investment Partners. ITC's Japan Gold Funds have about 2 billion yen under management.

Still, ETF assets are a fraction of physical holdings, and Japanese institutional investors such as pension funds remain reluctant about exposure to commodities.

They could be holding commodities in hedge funds, like managed futures, but I don't think many want to invest directly in gold or other commodities even if returns are extremely attractive, said a fund manager of an industrial material maker, who supervises about 50 billion yen in corporate pensions.

Gold prices may be hitting successive records, but for those buying in yen, they are still down nearly a fifth from a record high in 1980.

There is also no strong incentive to buy.

The current core investor generation has not experienced real damage to the yen's value or a crisis which rocked the country, said Tetsu Emori, a fund manager at Astmax Co Ltd.

There is no sense of fear in Japan right now as there is in Europe or in the United States. So, investors who own gold focus only on how to cash in from the rise in prices, he said.

PHYSICAL SALE PREVAILING

Gold in Japan is not so much associated with risk aversion, but more as an asset that many bought when prices languished for 30 years.

The retail price at Japan's largest bullion house Tanaka Kikinzoku Kogyo was 4,745 yen per gram on August 23, excluding the 5 percent consumption tax, the highest since September 1980. Retail gold peaked in January 1980 at 6,495 yen.

Selling of gold has snowballed since the start of August, unlike in January 2008 when a spike in gold prices led to an explosive but short-lived gold sales boom, said Osamu Ikeda, Tanaka's general manager.

Selling accelerated in August as gold rallied to historic highs, and that is symbolic of a matured Japan, Ikeda said.

Ikeda said the amount of gold for investment purposes that the house bought back from customers more than doubled to 10.2 tonnes as of August 23 from 4.3 tonnes in July. At the August 23 prices this would be worth around 48.4 billion yen.

Sellers are not limited to retired or retiring generations nor shops confined to established bullion houses.

Customers bring all sorts of jewelry, gold cups, watch, teeth, but sometimes desperate ones bring fake gold or even their talismans, said Seiichi Nakamura, manager at confectionary retail chain Nakamuraya.

A lot of stores of this kind appeared recently, so that it turned into sort of a survival game, he said, adding the number of customers, mainly women in their 40-50s, had doubled to 20 a day in recnt days.

Media playing up the surge in gold is also driving the move.

The media helped us, I think. When people learned there is a boom for selling gold now, they decided to do it too. It's like a chain effect, said shop manager Kenta Okiyama at antique dealer Otakaraya.

Tanaka Kikinzoku's Ikeda said buying interest has picked up, even in the physical market, from those in their 30s and 40s, although sellers still outnumber buyers by 5 to 1.

It used to be one-way flows of just sellers. Now, there are sellers to book profits and some buyers betting on further rises in prices, Ikeda said.

NET GOLD EXPORTER

As long as Japanese remain sellers as the price rallies, Japan is set to be a net gold exporter for the sixth consecutive year in 2011.

But households' growing desire to profit from a bullish market outlook may cap the total export volumes below the 2008 peak of 95.5 tonnes, just as they did last year.

Between January-June, Japan exported a total 45.8 tonnes of gold, compared to 46 tonnes the same period a year go. Net exports at 43 tonnes exceeded 39 tonnes a year earlier.

Japan exported a total of 91 tonnes of gold and imported 13 tonnes in 2010, resulting in record net exports of 78 tonnes, about a quarter of annual output from top miner China.

Japanese households were seen holding about 1,500 tonnes of gold last year, so the net exports may have reduced the amount to around 1,400 tonnes now, industry officials say.

There is still lots of gold in this country. Net exports could hit records again this year, Ikemizu said.

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