China tax clamp hammers gold, jewelers reeling
Gold prices stabilized near $4,000 per ounce on Monday after China eliminated a tax benefit for certain retailers, a policy shift expected to reduce consumption in a major global market for precious metals. The metal for immediate delivery gained 0.2 percent following an early decline of as much as 1 percent. Beijing announced on Saturday it would end full value-added tax offsets for some sellers of gold purchased from the Shanghai Gold Exchange and Shanghai Futures Exchange, causing jewelry company shares to plummet.
The revised policy allows businesses producing non-investment gold for jewelry or electronics to offset just 6 percent of the VAT, reduced from 13 percent. Non-members of SGE or SHFE face identical restrictions when selling investment products such as gold bars. Adrian Ash, research director at BullionVault, said the tax modifications in the world’s largest gold consumer will hurt global sentiment, though London markets recovered from Asian weakness, demonstrating continued bullish momentum.
Jewelry stocks declined sharply, with Chow Tai Fook Jewellery Group falling as much as 12 percent in Hong Kong, Chow Sang Sang Holdings International dropping more than 8 percent, and Laopu Gold sliding over 9 percent. Analysts at Citigroup, led by Tiffany Feng, predicted the industry would increase prices to absorb cost pressures. Gold reached record highs in October before retreating, yet it remains up over 50 percent this year.
