China Ends Gold Tax Break, Driving Up Consumer Prices in Major Bullion Market
The removal of a longstanding gold tax advantage in China could pose a significant challenge for consumers in one of the world’s key bullion markets. In line with a recent legislative update from the Ministry of Finance, Beijing has announced that retailers will no longer be permitted to deduct a value-added tax on gold sales acquired from the Shanghai Gold Exchange, irrespective of whether the gold is sold directly or after undergoing processing. The implementation of this change will commence on November 1. Investment products, including high-purity gold bars and ingots, along with coins sanctioned by the People’s Bank of China, are encompassed in the regulation. Furthermore, the legislation extends to non-investment uses, including jewelry and industrial materials.
In a period marked by a sluggish property market and tepid economic growth that have strained public finances, the decision is expected to be advantageous for the government as it should enhance revenue. However, it is quite likely that the modifications will lead to an increase in the cost of purchasing gold for Chinese customers. Gold’s recent record-breaking advance has entered overbought territory, positioning the precious metal for a potential sudden drop. A purchasing frenzy among retail investors worldwide made this possible.
A shift in the ongoing purchasing via exchange-traded funds, which had been rising since late May, aligned with the steepest drop in gold prices in over ten years. Furthermore, it aligned with the end of purchases conducted during the holiday season in India. Meanwhile, the United States and China have come to a trade truce, leading to a decrease in the demand for bullion as a safe-haven asset.
Nevertheless, gold remains near the $4,000-an-ounce threshold that it surpassed earlier in October, and many of the underlying factors that propelled it upward are expected to persist. These fundamentals encompass purchases by central banks globally, interest rate reductions in the United States, and a range of international uncertainties that persist in enhancing gold’s perceived safety for investors.
