Gold prices held near $4,000 an ounce after a weak start on Monday, as China ended long-standing tax breaks for some retailers. This change could weigh on demand in one of the world's largest precious metals markets.
Gold bullion prices for immediate delivery were trading little changed by midday in London, after falling as much as 1% in early trading. Beijing announced on Saturday that it would no longer allow some retailers to fully offset value-added tax when selling gold they purchased from the Shanghai Gold Exchange and the Shanghai Futures Exchange. The news sent Chinese gold jewelry stocks plummeting.
Under the new policy, companies producing so-called non-investment gold, such as for jewelry or industrial applications like electronics, can only offset 6% VAT, down from 13% previously. Companies that are not members of the exchanges will be subject to the same change when they sell investment products, including gold bullion.
Gold surged to a record high in October, driven by a surge in retail buying, but has since fallen sharply. Prices are still up more than 50% year-to-date, even after the decline. Many of the fundamentals that fueled the rally, including central bank demand and safe-haven assets, are expected to remain in place.
"Tax changes in the heaviest gold-consuming countries will hurt global sentiment," said Adrian Ash, research director at BullionVault. However, the rebound in the London market on Monday, after weakening during Asian trading hours, suggests bullish sentiment remains strong, he added.
Among jewelry stocks, Chow Tai Fook Jewellery Group Ltd. fell as much as 12% in Hong Kong, Chow Sang Sang Holdings International Ltd. fell more than 8%, and Laopu Gold Co. fell more than 9%. The tax changes "will likely lead the entire industry to raise prices to address cost pressures," Citigroup Inc. analysts, including Tiffany Feng, wrote in a note.
Spot gold was trading around $4,004.86 per ounce at 11:32 a.m. in London. Silver was also little changed, while platinum and palladium rose. (alg)
Source: Bloomberg
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