China's gold market could face challenges this year as high prices hit consumer demand for physical gold and jewelry, according to some analysts.
However, the country will still play an important role in the global gold market as a new economic segment enters the game.
Last week, China launched a new pilot program that for the first time allows insurance companies to buy gold as an investment asset. Under the program, 10 insurers — including the country’s two largest, ICC Property & Casualty Co. and China Life Insurance Co. — will be able to invest up to 1% of their assets in gold.
The Shanghai Gold Exchange (SGE) is the driving force behind the pilot project, which has been years in the making. At a panel discussion at the London Bullion Market Association (LBMA) 2024 Precious Metals Conference in October, SGE Vice President Zenghui highlighted significant interest from insurers in gold.
Mr Zenghui said the initiative is just part of the development of China's gold market, which is becoming less dependent on consumer demand and increasingly recognized as a global financial asset.
He also asserted that renewed investment demand for gold would further cement China's influence in the broader international market.
The pilot project is being launched as China's economy continues to grow, but limited capital markets mean few long-term investment opportunities.
“This policy adjustment marks gold as the first commodity that Chinese insurance companies are explicitly allowed to invest in. Previously, China restricted insurance funds from holding assets without “stable cash flows” and also limited the proportion of investments in bonds and stocks.
This latest move could pave the way for broader institutional participation in the gold market, adding further momentum to the gold price rally,” said Jesse Colombo, independent precious metals analyst and founder of BubbleBubble Report.
Nicky Shiels, Head of Metals Research & Strategy at MKS PAMP, estimates that the pilot project could absorb around 7 million ounces of gold. “It’s a significant number but not a huge number,” she said.
Ms Shiels added that this demand will not impact the over-the-counter (OTC) market, as insurance companies will buy gold through the SGE. While this demand is in line with the general flow in exchange-traded funds (ETFs), she said it will still support the global gold market rally.
“In a bull market, if China gives the green light for large capital flows into the gold sector, this could create a “1+1=3” effect, boosting the gold price trend,” she said.
