China Insurance Companies Will Now Buy Gold

THE NEWS:

GoldFix, ZH Edit

Pursuant to China’s continuous drive to monetize gold the nation has begun to permit Gold’s use in their insurance industry as an investment vehicle for companies to offer.

Yesterday ZeroHedge noted in: Gold Tops $2900 As China Pushes Insurance Companies Into Precious Metals

Beijing has launched a pilot program  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, hitting a new high (in USD) above $2900 this morning..

On February 5, 2025, in order to broaden the channels for the use of insurance funds, optimize the insurance asset allocation structure, and promote insurance companies to improve their asset-liability management level, the Financial Regulatory Administration issued the "Notice on the Pilot Program of Insurance Funds Investing in Gold Business" (hereinafter referred to as the "Notice"). The pilot program of insurance funds investing in gold business will be carried out from the date of issuance of the "Notice".

This is no small thing and has historic parallels in the US.

ANALYSIS: USA PLAYBOOK, BUT MAYBE SAFER:

In the 1980s, with the US in almost desperate need to replace its withering manufacturing industry as an economic engine, especially after the stagflationary 1970s— The US liberalized ownership of equities fo all financial industries, effectively deregulating their ownership. The result was a booming economy and a broadening ownership of stocks as investment vehicles as LBOs reduced supply. This era was called the Go-go 80s.

China is replicating the US market structure but liberalizing and encouraging ownership in Gold, the safest investment asset on earth. They also culturally see the result of too much financialization, especially with equities that can result in wealth disparity and bubble creation.

China is doing the same thing, but with Gold. China is financializing itself just like the US did, but with more reliable and less volatile assets.

THE FULL STORY:

Here is GoldFix breakdown of that story starting with Eric Yeung who first alerted us to it with this post on X.com

Leading Insurers Positioned to Benefit from Pilot Program

The first batch of 10 pilot projects has been identified, with major insurance companies set to benefit. Participants include PICC Property and Casualty Insurance, China Life, China Taiping Life, China Export & Credit Insurance Corporation, Ping An Property & Casualty Insurance, Ping An Life, China Taiping Property and Casualty Insurance, China Taiping Life Insurance, Taikang Life Insurance, and New China Life. The pilot primarily involves large, well-established insurers with strong investment and research capabilities. Listed insurance firms are expected to benefit directly, with improved investment stability and long-term return potential.

Enhancing Asset Allocation and Risk Diversification

Gold investments provide insurance funds with a hedge against market volatility and a tool for portfolio diversification. As a precious metal, gold exhibits low correlation with traditional assets like stocks and bonds, making it an effective stabilizer. In periods of economic uncertainty or heightened market fluctuations, gold is expected to act as a "ballast" asset, reducing overall portfolio volatility.

Insurance funds, given their scale, must balance security, liquidity, and profitability in asset allocation. Gold aligns with these investment objectives by offering a hedge against inflation and providing insurers with additional flexibility and investment options.

Controlled Investment Scale and Market Impact

The 10 pilot insurers collectively manage approximately 19.95 trillion yuan in total assets. With a regulatory investment cap set at 1% of total assets, the estimated gold investment size currently stands at 199.5 billion yuan, approaching 200 billion yuan. This level of allocation could influence gold supply, demand, and pricing. As the pilot expands and insurers' total assets grow, gold investments and their market impact are expected to rise.