Category: Morning Brief

China is ending a long-standing gold tax incentive, which could be a blow to buyers in one of the world’s largest bullion markets. Starting in November, a new Ministry of Finance law will ban Beijing from allowing retailers to deduct value-added tax from gold sales purchased from the Shanghai Gold Exchange, whether sold directly or after processing.

This rule applies to both investment products, such as high-purity gold bars, ingots, and coins authorized by the People’s Bank of China, and non-investment items like jewelry and industrial materials.

The move is expected to increase government revenue during a time when a sluggish real estate market and slow economic growth strain public funds. However, these changes will likely make gold purchases more expensive for Chinese consumers as well.
Gold’s recent record-breaking rally has moved into overbought territory due to a buying frenzy among retail investors worldwide, setting the stage for a sharp correction.

A reversal of the relentless buying of gold through exchange-traded funds, which had been rising since late May, coincided with the metal’s worst decline in over ten years. It also occurred at the end of the Indian holiday-related seasonal buying period.

Meanwhile, demand for bullion as a safe-haven asset decreased following a trade truce between the US and China. Nonetheless, gold remains trading near the $4,000-an-ounce level that it crossed earlier in October, and many of the factors fueling its rise are expected to persist, including central bank purchases around the world, US interest rate cuts, and ongoing global uncertainties that continue to attract investors seeking safety..