Gold prices fell below the $4,000 mark after China's Ministry of Finance and another government department announced the termination of tax incentives for certain gold retailers. This policy shift may weaken gold demand, adding pressure to a market that recently hit record highs.
On Saturday, the two departments issued a notice stating that member institutions or clients trading standard gold through the Shanghai Gold Exchange or Shanghai Futures Exchange would remain exempt from value-added tax (VAT) when selling standard gold. However, taxpayers selling standard gold outside these exchanges must now pay VAT according to existing regulations.
Under the new policy, tax benefits will be exclusively reserved for members of the Shanghai Gold Exchange and Shanghai Futures Exchange, including major banks, refiners, and processors with direct trading access. Ordinary retailers will lose this tax advantage, with the policy remaining in effect until the end of 2027.
During early Asian trading on Monday, spot gold dropped 0.6% to $1,970 per ounce before recovering slightly to $1,990. Hong Kong-listed LAOPU GOLD saw its shares plunge over 8% intraday.
Adrian Ash, research director at BullionVault, noted that while Chinese gold demand has played a limited role in this year's record bull run, tax changes in the world's largest gold consumer nation could negatively impact global market sentiment.
**Policy Shift Impacts Retail Sector**
Previously, most Chinese processors could claim VAT deductions when selling to downstream consumers. The new policy alters this long-standing tax benefit mechanism, restricting it exclusively to formal members of the Shanghai exchanges.
These members include large banks, refiners, and processors with direct trading access, while ordinary retailers will no longer enjoy these tax advantages. The policy adjustment will remain effective until December 2027.
**Gold Fundamentals Remain Strong**
Spot gold currently trades 0.3% lower at $1,990 per ounce, with the Bloomberg Dollar Spot Index nearly flat. Silver prices declined, while platinum and palladium posted modest gains.
After reaching all-time highs in early October driven by global retail investor buying sprees, gold prices saw sharp declines in the last two weeks of October. Despite the pullback, prices remain up over 50% year-to-date.
Many fundamental drivers supporting gold's rally are expected to persist, including central bank demand and investor appetite for safe-haven assets, which should continue to underpin the market.