China starts pilot project allowing insurance funds to invest in gold

CHINA, the world’s biggest bullion consumer, will allow some of its insurance funds to buy gold for medium- and long-term asset allocations as part of a pilot project, the country’s financial regulator said on Friday (Feb 7).

The project should broaden institutional demand and may provide support to gold prices in China in the longer term depending on insurance funds’ appetite for participating in it, according to analysts. The 10 pilot participants include China Life Insurance, New China Life Insurance and several subsidiaries of Ping An, the National Financial Regulatory Administration said in a notice.

“It will certainly be positive in terms of fresh demand. What we don’t know is how much they would want, of course,” said StoneX analyst Rhona O’Connell.

Most professional investors allocate anywhere between 3 per cent and 20 per cent of the assets they control to gold, but any immediate impact is unlikely with purchases, if and when they start, to be spread over time, she added.

The Financial Supervision and Administration Bureau said the total account balance of gold investment as part of the project must not exceed 1 per cent of an insurer’s total assets at the end of the previous quarter.

The investment options under the programme include gold spot physical contracts, gold spot deferred delivery contracts, and gold leasing business listed or traded on the Shanghai Gold Exchange, as per the notice.

“I could see it becoming a popular alternative to Chinese investors especially with other assets in turmoil. This is certainly price positive for gold and furthers China’s position as the primary gold-consuming nation,” an independent metals analyst Ross Norman said.

To participate in the project, the insurance companies should obtain board approval, ensure role separation in investment activities, establish risk management systems to prevent credit risk and ensure operational risk management, the financial regulator said.

International spot gold rates scaled a record high of US$2,882.16 on Wednesday, fuelled by concerns over a trade war between the US and China and its impact on economic growth. REUTERS