China removes tax incentives on gold, but the yellow metal holds strong

China’s decision to eliminate tax rebates on retail sales of gold bars and coins has sent shockwaves through the global gold market.

Currently, gold is trading at around $4,000 per ounce after a mixed opening that saw the yellow metal drop by more than 1% before recovering in early trading: spot gold prices are now up 0.2%, a clear sign that demand is picking up again.

Beijing announced the tax overhaul on gold late last week as part of an effort to remove subsidies on gold sold by traders through the Shanghai Gold Exchange and the Shanghai Futures Exchange. However, the news has had a stronger impact on the share prices of major listed jewelry retailers.

Under the new rules, companies producing so-called non-investment gold (jewelry and various industrial applications) can now reclaim only 6% VAT, down from the previous 13%. Companies outside this group will be subject to the same regime when selling investment products, including gold bars.

Despite recent profit-taking, gold continues to soar, with prices up more than 50% since the beginning of the year.

The nervousness in Asian markets does not appear to have spread to European gold markets, with the London Metal Exchange well positioned to continue its upward trend: spot gold in London is currently trading at $4,012 per ounce, platinum is up 2.2%, and smaller gains are being recorded in silver and palladium.

Sofia Ileana Morgante