Gold dipped below $4,000 an ounce after China ended a long-standing tax rebate for some retailers, a change that could weigh on demand in one of the world’s largest precious-metals markets.
Gold prices for for immediate delivery fell as much as 1% before paring most of that intraday loss, as Chinese jewellery stocks tumbled. Spot gold traded 0.1% lower at $3,997.40 per ounce in Singapore after dropping 2.7% last week. The Bloomberg Dollar Spot Index was little changed.
On Saturday, Beijing announced that it would no longer allow some retailers to offset a value-added tax when selling gold they bought from the Shanghai Gold Exchange and Shanghai Futures Exchange, whether sold directly or after processing.
The precious metal surged to a record high in October, aided by a retail buying frenzy, before dropping sharply in the final two weeks of the month. Prices are still up by more than 50% year-to-date even after the pullback, with many of the fundamentals that pushed gold higher, including central bank and haven demand, expected to remain in place.
“While Chinese gold demand has played little part in this year’s record bull market, the tax changes in gold’s heaviest consumer nation will dent global sentiment,” said Adrian Ash, director of research at BullionVault. “This news could prove very welcome to traders and investors hoping for a deeper correction after last month’s spike.”
Among jewellery stocks, Chow Tai Fook Jewellry Group Ltd. fell as much as 12% in Hong Kong, Chow Sang Sang Holdings International Ltd. shed more than 8%, and Laopu Gold Co. dropped more than 9%. The tax change is “likely to see the entire industry raise prices to pass through the cost pressure,” Citigroup Inc. analysts including Tiffany Feng wrote in a note.
Most firms in China had been deducting value-added tax on inputs when selling to consumers. Under the new policy — which will stay in place until the end of 2027 — the tax incentive is reserved for members of the Shanghai Gold Exchange and Shanghai Futures Exchange when they intend to sell gold as investment products.
However, when exchange members and non-members intend to produce non-investment gold, such as jewelry or for industrial use, they can now offset only 6% of the input value-added tax when selling to consumers, instead of offsetting 13% of the cost as before. The same applies to companies who are not members but can still purchase gold directly from exchange, regardless of the purpose of the purchase.