China may help gold prices rise above $3,000
China has just allowed insurance companies to invest in gold, a move that is expected to create a new group of buyers that, along with continued purchases by global central banks, could push gold prices above $3,000.
Gold prices are rising sharply
The world gold price has increased by more than 10% this year, reaching a record of 2,954 USD/ounce (about 28.3 grams) on February 21. This is a significant increase compared to 2024, when the gold price increased by 26% - the largest annual increase in 14 years.
Financial firm Goldman Sachs predicts gold prices could reach $3,100 to $3,300 an 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 7, 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 USD into the gold market, supporting gold prices to rise further.
"This directive, which takes effect immediately, could inject significant capital into the gold market. This move could further support gold prices as it opens up a new investment avenue for insurance companies," said Joshua Rotbart, managing partner of J. Rotbart & Co, a Hong Kong-based commodities trading firm.
Global central banks have also played a key role in driving up gold prices. Last year, central banks bought 1,045 tonnes of gold, up slightly from 2023. This has helped reduce dependence on the US dollar and pushed gold prices closer to $3,000 an ounce.
Geopolitical tensions are also a major factor in the rise in gold prices. After Donald Trump was re-elected as US president last November, his tariff policies have caused trade conflicts, causing many investors to seek gold as a safe haven.
According to Goldman Sachs, demand for gold from central banks could push gold prices up by 9%. Experts also said that if trade tensions continue, gold prices could surpass the $3,000/ounce mark in the coming weeks.
Global gold market situation
While Chinese insurers are allowed to buy gold, they may not buy it in droves right away. The stock market is more attractive, so investing in gold may be gradual over time. However, in the long run, the move will help Chinese insurers diversify their investments and benefit from rising gold prices.
Mainland Chinese insurers are unlikely to rush to buy gold, said Brian Fung, chief executive of the Hong Kong Gold Exchange. Other financial assets, after a sharp rise in stock prices, may be a higher priority, he added.
However, Beijing's policy push could prompt insurers to buy enough gold to align with international practice, according to Anderson Cheung, head of global commodities at Best Profit Capital, a Hong Kong-based financial services firm.
In the global market, many American investors rushed to buy gold due to concerns that Mr. Trump would impose import tariffs on gold. This caused a sharp increase in the amount of gold transferred from London to New York. As of January, the amount of gold held in London was 8,535 tons, down 1.7% compared to December.
'Trump's announcement of 25% tariffs on both Canada and Mexico has contributed to the turmoil in the metals market, as Canada supplies gold to the US, while Mexico is one of the largest silver producers,' said Gareth Oliver, precious metals analyst at Marex.
It remains to be seen whether Beijing's latest policy will help extend the gold rally, he added.