Old Store Gold plunged over 8% intraday! Another explanation for gold falling below 4000: the end of China's tax incentives.

The Ministry of Finance and another department have announced the cancellation of certain retail gold tax incentives. Spot gold has fallen below the $4,000 mark. This policy adjustment may weaken gold demand and bring new pressure to a market that recently hit historic highs.

Last Saturday, the two departments released an announcement stating that when member institutions or clients trade standard gold through the Shanghai Gold Exchange or Shanghai Futures Exchange, the seller, whether a member institution or client, is exempt from value-added tax (VAT). Taxpayers who sell standard gold outside the exchanges must pay VAT according to current regulations.

This means that under the new policy, tax incentives will only be available to members of the Shanghai Gold Exchange and Shanghai Futures Exchange, including major banks, refineries, and processors able to participate directly in trading. Ordinary retailers will lose this tax incentive. The policy will remain in effect until the end of 2027.

Early Monday in Asian trading, gold prices responded by falling; spot gold dropped as much as 0.6% to $3,970 per ounce, currently quoted at $3,990 per ounce. Lau Po Gold in Hong Kong stocks fell more than 8% intraday.

Adrian Ash, Head of Research at BullionVault, stated that although China's gold demand has played a limited role in this year's record bull market, the tax changes in the world's largest gold consumer will hit global market sentiment.

Policy Adjustment Impacts Retail Sector

Previously, most Chinese processors could deduct the VAT input when selling to downstream consumers. The new policy alters this long-standing tax incentive mechanism, now reserving it only for official members of the Shanghai Gold Exchange and Shanghai Futures Exchange.

These members include large banks, refineries, and processors able to participate directly in trading. Ordinary retailers will lose this tax incentive. The policy adjustment will continue until the end of 2027.

Gold Price Fundamentals Still Supported

As of now, spot gold is down 0.3% to $3,990 per ounce. The Bloomberg Dollar Spot Index is almost unchanged. Silver is down, while platinum and palladium are slightly up.

Driven by a surge in buying from global retail investors, gold prices soared to record highs in early October this year, but dropped sharply during the last two weeks of October. Despite the correction, gold prices are still up more than 50% year-to-date.

Despite the pullback, many fundamental factors driving gold upward are expected to persist. Central bank demand and investors' continued search for safe-haven assets will continue to support gold.

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