China's National Financial Regulatory Administration has issued the “Notice on the Launch of a Pilot Program for Insurance Funds to Invest in Gold” (hereinafter referred to as the “Notice”), which allows ten insurance companies to invest in gold, effective immediately upon publication of the Notice on February 7.
The Notice specifies the requirements in the following three aspects. First, it defines the scope of business and form of investment in gold, and allows ten insurance companies to participate in the pilot program. Second, it standardizes the pre- and post-investment management of gold by pilot insurance companies. Third, it requires the establishment of a regular and interim reporting mechanism for the pilot program and stipulates the corresponding supervision and management requirements.
Gold generates long-term returns, with an average annual return of 8.6% in US dollars since the end of the Bretton Woods system in 1971. Meanwhile, since the creation of the Shanghai Gold Exchange in 2002, gold priced in Chinese yuan has recorded a higher annualized return of 9.8%. China, the world's second-largest insurance market, has a growing demand for diversification of 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. Adding gold to these portfolios offers the potential for lower volatility, higher returns, and an optimized risk-return profile, preserving or even enhancing asset value. Furthermore, amid growing global uncertainty, gold's established role as a hedge against risk positions it as an effective tool for insurance funds to manage global systemic risks.
David Tait, CEO of the World Gold Council, said: “We are pleased to see China actively exploring the possibility of involving insurance funds in gold investments, a move that will have significant implications for the future development of China's insurance and gold markets. Since 2013, China has established itself as 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, increase its international influence and competitiveness, and thereby revitalize the global gold market.”