Chinese insurance companies are about to detonate a bomb that could have a profound impact, especially on the gold market. This bomb was already set off in February 2025, when the Chinese government, through its insurance regulatory authority, issued a new regulation requiring the country’s large insurance companies to hold at least one percent of their assets in physical gold.
One percent of assets may not sound like too much gold that now needs to be purchased by insurance companies. Initially, not all companies are affected, but only the country’s largest insurers. However, this is only the first stage of a multi-stage plan.
The next stages envision gradually increasing the number of insurance companies affected by the regulation, so that eventually all insurers will be included. The percentage of managed funds that must be invested in physical gold is also expected to rise from one to five percent in the medium term.
A Massive Rush from the Far East for the World’s Gold is Slowly but Surely Brewing
The decision by the Chinese insurance regulatory authority has far-reaching implications, as it will redirect billions of US dollars, which have predominantly been invested in US government bonds, into the gold market. The immediate consequences are already significant, but even more dangerous are the medium-term effects that this decision has or could still have.
Since decisions of this magnitude in China are not made on a whim but are approved by the highest authority, we are dealing here with another facet of China’s strategy to detach itself from the US dollar and the Western financial system.
The news is therefore not only bad for the American bond market and the US dollar but good for gold. It also comes at a particularly unfavorable time, when the gap between supply and demand is already very wide. What this will mean for the price of the yellow metal is obvious: it is likely to continue to rise massively.
No Small Matter
Even the first, very obvious question of what this means for Chinese insurers, for China, and for the gold market is enough to give market participants sleepless nights. However, two further questions are much more serious in their implications: The first question is whether Western insurers could follow this example. If answered with a cautious yes, the third question immediately arises: where will all that gold come from, and at what levels might the gold price then trade?
Turning first to the implications for China itself, the consequences are already significant, because China’s insurers possess assets of 32 to 38 trillion Yuan, which translates to 4.5 to 5.3 trillion US dollars. If only one percent of this sum is to be invested in physical gold, then in the coming years, 320 to 380 billion Yuan, or 45 to 53 billion US dollars, will have to be reallocated from American government bonds into gold.
Assuming for a moment that this would happen at today’s prices, an additional demand of 630 to 750 tons would enter the gold market. Even if the purchases could be spread over a period of three years, the additional demand of 210 to 250 tons per year would still be quite high, representing about five to ten percent of current mine production.
Significant Impacts on the Gold Price are Expected
If one also includes gold recovered from recycling, the percentage of current supply then needed drops to below ten percent. However, this additional demand enters a market where central banks are also acting as buyers much more strongly than in previous years and are stocking up on gold.
Estimates therefore assume that just the first phase of the Chinese program—meaning only the purchases by the ten largest insurance companies and merely one percent of assets being reallocated to gold—could cause the gold price to rise from the current $3,300 per troy ounce to $3,700 to $4,500 by year-end.
The Chinese themselves internally anticipate gold prices of $5,000 for the later phases of their program, that is, when all insurers must follow the new regulation and not just one percent of managed assets, but three, four, or five percent, must be invested in physical gold.
We will examine the question of what happens if Western insurance companies and investors follow the Chinese example here tomorrow.
