Gold Drops Back Below $4,000 After China Ends Tax Incentive

Gold dropped below $4,000 an ounce after China ended a long-standing tax rebate for some retailers, a change that could hurt demand in one of the largest precious-metals markets.

Bullion fell as much as 0.6% to about $3,978 an ounce in early Asian trading. Beijing announced on Saturday that it would no longer allow some retailers to offset a value-added tax when selling gold they bought from the Shanghai Gold Exchange and Shanghai Futures Exchange, whether sold directly or after processing.

The precious metal surged to a record high in early October, aided by a buying frenzy among retail investors around the world, before dropping sharply in the final two weeks of the month. Prices are still more than 50% higher year-to-date even after the pull-back, with many of the fundamentals that pushed it higher expected to remain in place, including central-bank demand and investors seeking haven assets.

"While Chinese gold demand has played little part in this year's record bull market, the tax changes in gold's heaviest consumer nation will dent global sentiment," said Adrian Ash, director of research at BullionVault. "This news could prove very welcome to traders and investors hoping for a deeper correction after last month's spike."

Most fabricators in China had been deducting value-added tax on inputs when selling downstream to consumers. Under the new policy, — which will stay in place until the end of 2027 — the tax incentive is reserved for members of SGE and Shanghai Futures Exchange, which include major banks, refineries and fabricators who can directly participate in trading.

Source: Bloomberg Europe