Gold held around $4,000 an ounce after a weak start on Monday after China scrapped long-standing tax breaks for some traders, which could weigh on demand in one of the world’s biggest precious metals markets.
The price of gold for immediate delivery rose 0.1%, after falling as much as 1% in early trade. Beijing announced on Saturday that it will no longer allow some traders to offset value-added tax when selling gold they bought on the Shanghai Gold Exchange and Shanghai Futures Exchange, whether sold directly or after processing. The news caused Chinese gold jewelry stocks to fall.
Gold hit a record high in October, fueled by frenzied retail buying, but has since fallen sharply. Prices are still up more than 50% year-to-date, even after the crash. Many of the underlying drivers of growth, including central bank and haven market demand, are expected to remain unchanged.
“While Chinese demand for gold has played a small role in this year’s record bull market, tax changes in the world’s largest gold consumer will dampen global sentiment,” said Adrian Ash, director of research at BullionVault. “This news could prove very welcome for traders and investors hoping for a deeper correction after last month’s bounce.”
Among the stocks of jewelery firms, shares of Chow Tai Fook Jewelery Group Ltd. fell by as much as 12% in Hong Kong, Chow Sang Sang Holdings International Ltd. fell by more than 8%, and shares of Laopu Gold Co. they fell by more than 9%. The tax change “is likely to cause the entire industry to raise prices to overcome cost pressures,” Citigroup Inc. analysts, including Tiffany Feng, wrote in a note, according to SEEbiz.
Most firms in China deduct value added tax on inputs when selling to consumers. Under the new policy – which will remain in place until the end of 2027 – the tax incentive is reserved for SGE and SFE members, when they intend to sell gold as investment products.
