China has officially closed one of the most enduring loopholes in its financial market. Effective November 1, Beijing should have eliminated long-standing tax benefits on gold. This move could make the metal more expensive for consumers and potentially cool one of the world's busiest bullion markets.
According to the new directive from the Ministry of Finance, sellers will no longer be able to offset VAT when selling gold purchased on the Shanghai exchange, regardless of whether it is sold directly or after processing.
This rule applies to everything from investment bars and coins approved by the People's Bank of China to jewelry and industrial materials.
For Beijing, this is a pragmatic step. After several years of a weak real estate market and sluggish growth, the budget needs a boost. However, for the gold market, this marks a symbolic moment: the era of inexpensive Chinese gold has come to an end.
In recent months, the metal has been operating in a state of overheating. Retail investor enthusiasm worldwide has driven prices to record levels, pushing gold into overbought territory.
The sharp decline in prices represents the most significant drop in a decade and coincided with a reversal in ETF flows, as investors began to lock in profits. Seasonal factors also contributed. Thus, the festive purchasing cycle in India concluded, and a ceasefire in the US-China trade war reduced some "safety" demand.
Nonetheless, gold remains near the $4,000 per ounce mark. Central banks continue to purchase, interest rates in the United States are declining, and geopolitical risks prevent investors from feeling at ease. All of this helps maintain gold's status as a safe haven, though now, it is a bit more expensive to enter.
Many analysts believe this is not the end of the bullish trend. Forecasts remain confident, predicting that prices could approach $5,000 per ounce within the year. Thus, while the era of tax benefits has concluded, faith in gold persists.
