On February 7, China launched a pilot program allowing certain insurance companies to invest in gold as part of their medium to long-term asset allocation strategies.

According to the National Financial Regulatory Administration, the initiative seeks to expand the utilization channels for insurance funds, optimize the structure of insurance asset allocation, and strengthen insurance firms' asset-liability management capabilities.

Ten insurance companies are participating in the pilot program, which allows gold investments through multiple channels such as spot contracts on the Shanghai Gold Exchange's main board, deferred delivery contracts, centralized pricing agreements, gold swap contracts, and gold leasing operations.

Under the new policy, these firms can allocate up to 1% of their assets to bullion, which could translate into an estimated 200 billion yuan (US$27.4 billion) in gold investments, according to a report from Minsheng Securities Co.

 

 

On March 25, Chinese insurance companies have conducted their first gold transaction at SGE.

 

 

SGE also announced it agreed to absorb PICC Property and Casualty Insurance Co., Ltd., China Life Insurance Co., Ltd., Ping An Life Insurance Co., Ltd. of China, and China Pacific Life Insurance Co., Ltd. to become members of Shanghai Gold Exchange.

 

 

Gold is a generator of long-term returns, providing an average annual return of 8.6% in US dollars since the end of the Bretton Woods system in 1971. Meanwhile, since the inception of Shanghai Gold Exchange in 2002, gold priced in Chinese yuan has seen a higher annualized return of 9.8%. China, the world’s second-largest insurance market, has a growing demand for diversifying its insurance funds into new asset classes. Gold’s low correlation with other assets and its stable long-term returns make it a high-quality, non-traditional asset for insurance portfolios. Incorporating gold into these portfolios brings the potential for lower volatility, higher returns, and an optimized risk-return profile, preserving or even enhancing the asset value. Furthermore, amid rising global uncertainties, gold’s well-established role as a hedge against risk positions it as an effective tool for insurance funds to navigate global systemic risks.

David Tait, CEO of the World Gold Council, says: “We are pleased to see China actively exploring ways to involve insurance funds in gold investments, a move that will have significant implications for the future development of both China’s insurance and gold markets. Since 2013, China has established itself as both the world’s largest producer and consumer of gold. Allowing insurance funds to invest in gold will further promote the development of China’s gold investment market, drive product innovation, optimize the investor structure in China’s gold market, enhance its international influence and competitiveness, and thus inject new vitality into the global gold market.”

China’s initiative to let insurers invest in gold could create 300 tonnes of additional demand, equivalent to 6.5% of the annual global market, according to Bank of America.

 

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