China, the world’s largest consumer of gold, announced on Friday (Feb 7) that it will permit select insurance funds to invest in gold as part of a pilot project aimed at enhancing medium- and long-term asset allocation strategies. This new initiative, revealed by the country’s financial regulator, is expected to stimulate institutional demand and potentially support gold prices in China over time.
The pilot project includes 10 participants, such as major insurers like China Life Insurance, New China Life Insurance, and various subsidiaries of Ping An, as noted by the National Financial Regulatory Administration. The program allows these insurance companies to invest in a range of gold-related financial instruments, including gold spot physical contracts, gold spot deferred delivery contracts, and gold leasing businesses listed or traded on the Shanghai Gold Exchange.
Analysts suggest that while this move could create fresh demand for gold, the actual impact on the market will depend on the level of participation from insurance funds. Rhona O’Connell, an analyst at StoneX, commented, “It will certainly be positive in terms of fresh demand. What we don’t know is how much they would want.” She added that typical professional investors allocate between 3% and 20% of their assets to gold, although the immediate market effect is likely to be gradual as purchases are spread out over time.
To ensure controlled exposure, the Financial Supervision and Administration Bureau has set a cap on investments, stating that the total balance of gold investments under the pilot program must not exceed 1% of an insurer’s total assets at the end of the previous quarter.
The program also includes strict guidelines for insurance companies. Participants must secure board approval, maintain separate roles in investment activities, and establish comprehensive risk management systems to mitigate credit and operational risks, the regulator said.
Independent metals analyst Ross Norman predicted that the program could attract interest from Chinese investors seeking alternatives amid turmoil in other asset markets. “This is certainly price positive for gold and strengthens China’s position as the leading gold-consuming nation,” Norman said.
As international gold prices reached a historic high of $2,882.16 on Wednesday, driven by concerns over a potential US-China trade war and its economic impact, China’s move to allow insurance funds to invest in gold could further influence global gold markets in the months ahead.
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