Gold steady after China ends some tax incentives

Gold held around US$4 000 an ounce after a weak start on Monday, as China ended a long-standing tax rebate for some retailers in a change that could weigh on demand in one of the world’s largest precious-metals markets.

Bullion for immediate delivery rose 0,2 percent, after falling as much as 1 percent in early trade. Beijing announced Saturday that it would no longer allow some retailers to offset a value-added tax fully when selling gold they bought from the Shanghai Gold Exchange and Shanghai Futures Exchange. The news sent Chinese gold jewelry stocks tumbling.

Under the new policy, companies producing so-called non-investment gold, such as for jewelry or industrial applications like electronics, can offset only 6 percent of the VAT, down from 13 percent previously. Firms who are not SGE or SHFE members will be subject to the same change when they sell investment products, including gold bars.

Gold surged to a record in October, pushed higher by a retail buying frenzy, but it has since dropped sharply. Prices are still up by more than 50 percent year-to-date, even after the pull-back. Many of the fundamentals that fuelled the rally, including central bank and haven demand, are expected to remain in place.

“The tax changes in gold’s heaviest consumer nation will dent global sentiment,” said Adrian Ash, director of research at BullionVault. But the rebound in London markets on Monday, following weakness during Asian hours, shows that the bullish mood remains strong, he added.

Among jewelry stocks, Chow Tai Fook Jewellery Group Ltd. fell as much as 12 percent in Hong Kong, Chow Sang Sang Holdings International Ltd. shed more than 8 percent, and Laopu Gold Co. dropped more than 9 percent.

The tax change is “likely to see the entire industry raise prices to pass through the cost pressure,” Citigroup Inc. analysts including Tiffany Feng wrote in a note.

Spot gold was trading at around US$4 012 an ounce as of 8:27 a.m. in London. Platinum surged as much as 2,2 percent, while silver and palladium edged higher. — Bloomberg