China could support gold prices rising above $3,000.
China has just allowed insurance companies to invest in gold. This move is expected to create a new group of buyers, and coupled with continued gold purchases by global central banks, could push gold prices above $3,000.
Gold prices are rising sharply.
Global gold prices have risen by more than 10% this year, reaching a record high of $2,954 per ounce (approximately 28.3 grams) on February 21st. This is a significant increase compared to 2024, when gold prices rose by 26% – the largest annual increase in 14 years.
Goldman Sachs predicts that the price of gold could reach $3,100 to $3,300 per ounce by 2025.
Reasons for the increase in world gold prices
One of the main reasons for the rise in gold prices is China's decision.
On February 7th, China allowed 10 major insurance companies, including Ping An, China Life, and China Pacific, to invest up to 1% of their assets in gold. This is a way for them to diversify their investment portfolios. According to experts, this decision could inject an additional $27 billion into the gold market, supporting further price increases.
Joshua Rotbart, managing partner of J. Rotbart & Co, a Hong Kong-based commodities trading firm, said: "This directive takes effect immediately and could inject significant capital into the gold market. This move could further support gold prices as it opens a new investment avenue for insurance companies."
Furthermore, global central banks also play a significant role in driving up gold prices. Last year, central banks purchased 1,045 tonnes of gold, a slight increase compared to 2023. This helped reduce dependence on the US dollar and pushed gold prices closer to $3,000 per ounce.
Geopolitical tensions are also a significant factor driving up gold prices. Following Donald Trump's re-election as US president last November, his tariff policies have sparked trade conflicts. This has led many investors to seek refuge in gold as a safe haven.
According to Goldman Sachs' forecast, demand for gold from central banks could push gold prices up by another 9%. Experts also predict that if trade tensions continue, gold prices could surpass $3,000 per ounce in the next few weeks.
The global gold market situation
Although Chinese insurance companies are permitted to buy gold, they may not be buying it in bulk immediately. The stock market is more attractive, so investing in gold could be a gradual process over the long term. However, in the long run, this decision will help Chinese insurance companies diversify their investments and benefit from rising gold prices.
Brian Fung, CEO of the Hong Kong Gold Exchange, said mainland Chinese insurance companies are unlikely to rush to buy gold. Other financial assets, following the sharp rise in stock prices, may be higher priorities, he added.
However, according to Anderson Cheung, head of global commodities at Best Profit Capital, a Hong Kong-based financial services firm, Beijing's policy dynamics could prompt insurance companies to purchase enough gold to align with international practices.
On the global market, many American investors rushed to buy gold due to concerns that Trump would impose tariffs on gold imports. This led to a sharp increase in the amount of gold transferred from London to New York. As of January, gold reserves in London totaled 8,535 tons, down 1.7% from December.
Gareth Oliver, a precious metals analyst at Marex, said: "Trump's announcement of a 25% tariff on both Canada and Mexico has contributed to the disruption in the metals market, as Canada supplies gold to the United States, while Mexico is one of the largest silver producers."
He added that it remains to be seen whether Beijing's latest policy will help sustain the upward trend in gold prices.