A UBS report concludes that gold demand from China will be sustained, driven by at least three major structural changes in the world's largest consumer market.
"The vast majority, if not all, of our conversations revealed an upward bias for the medium-to-long-term trend of gold prices," the UBS precious metals team said in a new report after a series of meetings with market participants in China.
The primary drivers include a new pilot program allowing insurers to invest up to 1 percent of assets in gold, an expansion of bank-run accumulation plans, and tax rules that continue to exempt investment gold from value-added tax.
This structural demand from Chinese institutions could provide a new, durable source of support for global gold prices, especially as data shows trading volumes on the Shanghai Gold Exchange have already seen a material increase in recent weeks.
Insurance and Banking Sectors Drive New Demand
The most significant new institutional flow comes from the insurance sector. According to UBS, a pilot program is now underway that permits select insurance companies to allocate up to 1 percent of their assets under management (AUM) to gold.
About half of the companies included in this trial have already started actively investing. Their transactions are directly reflected in rising volumes on the Shanghai Gold Exchange (SGE), the designated venue for such investments. UBS notes that this deployment is still in its early stages and "there is still a considerable way to go before being fully allocated."
Alongside institutional moves, retail participation is being broadened. The report highlights that various banks are aggressively promoting gold accumulation plans through their digital platforms, lowering the barrier to entry for individual investors across the country.
Favorable Tax Policy Underpins Investment
Structural demand is further reinforced by government policy. New tax rules, set to be implemented from November 1, 2025, through December 31, 2027, will continue to exempt investment-grade gold from value-added tax.
This applies to standard gold traded through the Shanghai Gold Exchange and the Shanghai Futures Exchange, cementing its preferential status as an investment asset. In contrast, the tax costs associated with jewelry are higher, creating a clear policy incentive for investment-focused purchases.
The report suggests that the long-term potential for demand could be even greater if the current pilot program is expanded to include more insurance companies or if the 1 percent AUM cap is raised, which would unlock a larger pool of institutional capital for the gold market.
This article is for informational purposes only and does not constitute investment advice.
