Yesterday, we reported on why a new regulation by the Chinese insurance regulator is likely to put massive pressure on the global gold market. The regulation, issued in February 2025, initially obliges the country’s ten largest insurers to invest one percent of their managed capital in physical gold, i.e., in coins and bars.
In a second step, all other insurers in the Middle Kingdom will also be required to comply with this regulation. Subsequently, it is planned to gradually increase the percentage that must be invested in physical gold from one percent to up to five percent.
If China implements this regulation as planned, an additional gold demand of up to 250 tons per year is to be expected, assuming that the gold purchases by Chinese insurers are spread over a period of three years. This is not insignificant, as the additional demand enters a market that is certainly not lacking buyers.
Woe if Western Insurance Companies Follow the Chinese Example
It should be clear to everyone that the battle for the world’s gold will become much tougher if the Chinese implement their plan unchanged. However, the effects would be considerably more dramatic should Western institutions decide to follow this trend.
Politically, the idea of Western companies following the directives of a Chinese authority on gold purchases initially seems strange. However, in the capital market, trend following is currently one of the most popular and successful investment strategies.
The question is therefore not whether Western countries will also compel their insurers, by means of a regulation, to invest a certain percentage of their managed funds in gold. Much more crucial is the question: how long will investors in the West idly stand by and remain on the sidelines when they see that the price of gold simply continues to rise because central banks and Chinese insurance companies are buying up whatever gold they can get on the market?
The Implications for the Gold Market Would be Dire
If China’s insurers merely reallocate one percent of their managed funds into gold, the annual demand for gold will increase by around 250 tons per year over the next three years. However, China’s insurers manage only 4.5 to 5.3 trillion US dollars. US insurers have more than double this amount under management, with over twelve trillion US dollars, and European companies account for another eleven trillion US dollars in managed capital.
In other words, if Western insurance companies also jump on the gold trend originating from China, they would unleash at least five times as much financial power as China’s insurers. The annual additional demand for gold could easily rise from 250 tons to 1,000 to 1,500 tons as a result.
Should this happen, approximately half of the annual mine production would move directly from the mines into the vaults of insurance companies. The gold market is not even remotely prepared for such a high additional demand. Furthermore, every insurance company, like any other investor, knows that the longer they wait to buy, the less gold they will get for their money.
Is a Buying Panic in the Gold Market to be Expected Sooner or Later?
Awareness of this correlation will significantly fuel and strengthen a strong trend. With Bitcoin, the world has seen in the past eight years what happens when a lot of capital flows into a very narrow, non-expandable market.
A similar, if not significantly stronger, development could shape the gold market in the next eight to ten years. However, one thing should be considered: Even today, extremely conservative simple Indian farmers and Arab workers are active in the gold market with their small but consistent gold purchases, who would never in their lives have thought of investing their hard-earned money in such a speculative new asset like Bitcoin.
In other words: While gold is currently not nearly as hyped as Bitcoin, the number of its global fans is significantly larger.
