The market's gold rush, how can insurance funds "restrain" themselves?

◎ Reporter He Kui

It’s been a year since the pilot program for insurance funds investing in gold was launched. Among the 10 insurance institutions approved for the pilot, six have become members of the Shanghai Gold Exchange, and several have completed their first gold transactions.

Participation in gold investment has always been a shared hope among insurance funds to diversify their investment options. However, based on the one-year pilot experience, insurance funds have been very “restrained” in gold purchases: on one hand, four insurance institutions have not yet joined the Shanghai Gold Exchange; on the other hand, the investment amounts by those that have joined are relatively low, far from the policy-imposed investment cap.

Over the past year, COMEX gold prices have increased by over 60%. Amid the market’s rush into gold, insurance funds—professional institutional investors—seem to have missed this major gold rally.

In fact, compared to individual investors’ flexible decision-making, insurance funds must go through a professional and cautious decision-making process for any asset investment, which includes asset valuation analysis and risk management. For insurance funds, gold is a completely new asset class, requiring a longer time to establish a comprehensive research and investment system and a talent pool. Some insurance institutions that have not joined the Shanghai Gold Exchange may still be in the process of building their gold research and investment systems.

Due to the long-term nature of their liabilities, insurance funds have always adhered to a long-term investment philosophy. Investing in gold requires a broader, more long-term perspective. In recent years, driven by global uncertainties such as geopolitical conflicts, gold—an asset with hedging properties—has been highly sought after, with prices soaring. However, whether this upward trend will continue remains uncertain, posing a risk for long-term investors like insurance funds.

The significant volatility in gold prices also impacts the profit and loss statements of insurance funds. Unlike bonds or dividend-paying stocks, where returns come from interest and dividends, gold’s investment returns mainly depend on price fluctuations, which are influenced by geopolitical events, market supply and demand, and other factors, making them highly uncertain. A sharp decline in gold prices could lead to investment losses, negatively affecting the current profit and loss statement of insurance funds.

From this perspective, although investing in gold can help insurance funds optimize their portfolios and diversify risks, they tend to remain “restrained” in gold investments without thorough preparation. This restraint reflects a balance between risk and return considerations and demonstrates the rationality of professional investors.

During market frenzy, it is more important to establish and adhere to your own investment rules than to chase hot trends. While the surge in gold prices has created unrealized gains for many investors, some have gradually overlooked the fundamental fact that gold is also a risk asset. The biggest proof of this was the largest single-day drop in London spot gold in over 40 years at the end of January.

Short-term market enthusiasm is essentially a manifestation of collective irrationality, while “restraint” reflects the ability of professional investors to remain unaffected by market sentiment. Investment should stay within one’s expertise, maintaining clarity during market euphoria and seeking value during market fear.

(Edited by: Qian Xiaorui)

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