A pilot programme in China that allows insurers to buy gold for the first time could free up billions of dollars of investment in the metal, adding further impetus to a record-setting rally. Prices hit a fresh peak.
Ten insurance firms – including PICC Property & Casualty and China Life Insurance, two of China’s biggest – will be able to invest as much as 1 per cent of their assets in bullion, in a programme that became effective last Friday. That would translate into a potential 200 billion yuan (S$37.07 billion) of funds, Minsheng Securities said in a note.
Gold has been one of the strongest performing commodities of the new year, as well as in 2024, with the metal hitting successive records. That extended uplift has been powered by the US Federal Reserve cutting rates, and central-bank buying, including purchases from China. Donald Trump’s second term as US president has also added an extra driver, with traders scrambling to adjust to his disruptive moves on trade.
The shift in policy in China could be a signal that authorities recognise the dearth of investment options in Asia’s largest economy, and the need for alternatives amid a property downturn and an economic slump.
“Insurance companies lack options for mid- and long-term assets with stable yields,” Guotai Junan Securities analysts led by Liu Xinqi said in a note, even though bullion typically doesn’t offer that.
The policy tweak makes gold the first commodity that Chinese insurers have been explicitly permitted to invest in. China has restricted insurance funds from taking positions in assets without “stable cash returns,” and limits the amount they can put into bonds and stocks.
At this stage, demand from insurers for gold may take time to materialise.
“We are more likely to see accumulations when price rallies take a pause,” said Yuxuan Tang, a global market strategist at JPMorgan Private Bank. Institutional investors, such as insurers, are sensitive to prices due to their focus on returns, she said.
Spot gold traded at a record above US$2,898 an ounce on Monday. BLOOMBERG