China's gold market recently witnessed a key tax policy adjustment. The Ministry of Finance and the State Taxation Administration introduced differentiated value-added tax (VAT) policies for standard gold traded on the Shanghai Gold Exchange and the Shanghai Futures Exchange.

Amid heightened investor attention, UBS Global Wealth Management's Chief Investment Office (CIO) shared insights, suggesting the new rules may accelerate the centralization of gold trading in China.

Key takeaways from UBS's research report are summarized below:

**"Shift in Interest" Expected Among Investors** UBS noted that China, as one of the world's largest gold consumers, warrants close monitoring of policy changes. Given already weak jewelry demand due to high base prices, the bank expects the new tax policy's impact to be relatively limited.

"The new rules may speed up the consolidation of gold trading in China, while the continued VAT exemption for gold ETFs could redirect more investor interest toward gold investment products," UBS projected.

Under the new policy, until the end of 2027, member institutions or clients selling standard gold via the Shanghai Gold Exchange or Shanghai Futures Exchange will be exempt from VAT. For transactions without physical delivery, exchanges will waive VAT. For physical deliveries, VAT policies will differ based on whether the gold is for investment or non-investment purposes, with refunds or exemptions applied accordingly.

**Gold Price Target: $4,200/oz** UBS believes the policy will have minimal impact on global gold prices, with robust investment demand and central bank purchases remaining key drivers. Recent gold price corrections appear more technical than fundamental.

"We maintain a bullish outlook, with a 12-month target of $4,200 per ounce," UBS stated.

**Strong International Buying Interest** The bank also analyzed recent international gold price trends, noting sustained investor appetite. Gold ETF holdings surged by approximately 222 tons in Q3, while bar and coin demand exceeded 300 tons for the fourth consecutive quarter, reaching 316 tons. Jewelry demand also outperformed expectations.

UBS recommends investors buy gold on dips, as it remains an effective portfolio hedge, with current allocations still relatively low.

"Historical data shows that a mid-single-digit gold allocation is optimal in a diversified USD portfolio. Escalating geopolitical or financial market risks could push prices toward our upside scenario of $4,700/oz. Additionally, investors may consider yield-enhancing strategies amid elevated gold option volatility," the report added.