UBS: Insurance fund investment in gold gets green light, no major changes expected in asset allocation.

UBS released a research report stating that the China Banking and Insurance Regulatory Commission announced last Friday (7th) that it will allow some insurance companies to invest in gold as part of their medium to long-term asset allocation. Most domestic insurance companies are included in this. The bank pointed out that this move was expected, as the regulatory commission had already hinted at it at the Shanghai Lujiazui Finance & Trade Zone Development Forum in June last year. The bank also noted that interest rate risk is a major challenge facing the insurance industry currently, as the long-term downward trend in interest rates overlaps with an "asset shortage". Gold not only serves as a store of value, but also provides risk diversification and liquidity advantages. The bank stated that although there are many benefits to investing in gold, significant changes in asset allocation are not expected. First, the regulatory commission limits the gold holdings to 1% of total assets in the previous quarter. By September 2024, the total assets of the 10 pilot participants are about 20 trillion RMB, meaning the maximum inflow into the gold market is estimated to be around 200 billion RMB. In addition, although gold can be integrated into the strategic asset allocation framework, insurance companies tend to proceed cautiously, mainly because the price of gold has reached historic highs, and the impact of gold investments on closing the time gap is limited, as gold does not generate interest income. The bank indicated that it seems unlikely in the short term for gold to be included in the investment scope of insurance funds. The process of including new assets is often lengthy, and based on discussions with insurance companies, the bank has not yet learned of any new consultations currently taking place.