Gold Prices Face New Pressure as China Scraps Key Tax Incentive
Beijing has officially abolished a long-standing tax benefit on gold, a move that could reshape global bullion demand and alter the economics of jewelry and investment-grade gold across the world’s largest consumer market.
The new regulation, effective November 1, removes the ability of retailers to deduct value-added tax (VAT) on gold purchases made through the Shanghai Gold Exchange -a privilege that has existed for more than a decade and helped sustain China’s dominant role in the global gold trade.
A Major Policy Pivot
Under the new policy, sellers can no longer offset the VAT whether the gold is sold as an investment product – such as bullion bars, coins, or ingots – or used for jewelry and industrial purposes. Analysts say the decision marks one of the most significant fiscal shifts in China’s precious metals policy since the country liberalized gold trading in the early 2000s.
Officials have framed the decision as a fiscal necessity amid weakening local government revenues, a slowing property sector, and ongoing efforts to rebalance public finances. For consumers and retailers, however, the change is expected to translate into higher prices, thinner profit margins, and potentially reduced market activity in the short term.
A Blow to Retailers, A Boon for State Revenues
Gold retailers across major cities such as Shanghai, Shenzhen, and Beijing are already bracing for the effects. Industry insiders told Chinese financial outlets that the inability to recover VAT will raise the final cost of gold jewelry by as much as 5% to 10%, depending on design and purity. This could temporarily slow sales, especially among younger buyers, who had driven a surge in jewelry demand in recent years.
Economists believe the removal of the tax offset will provide Beijing with an immediate, if modest, source of additional fiscal income. Yet, in the long run, it could also dampen one of the country’s few resilient consumer sectors, as households increasingly view gold as a safeguard against currency weakness and market volatility.
Global Gold Market Feels the Ripple
The timing of China’s tax overhaul coincides with a period of sharp volatility in international gold markets. Prices briefly surpassed $4,000 per ounce in October – an all-time high – before retreating as investors took profits and global risk appetite improved.
Part of the recent decline has been attributed to a slowdown in exchange-traded fund (ETF) inflows and waning seasonal demand in India following festival season. The easing of geopolitical tensions and renewed U.S.–China trade dialogue have also reduced gold’s appeal as a defensive asset, at least in the short term.
Nevertheless, the long-term drivers that fueled gold’s ascent remain firmly in place. Central banks continue to accumulate gold reserves at record pace, global interest rates are declining, and concerns over fiscal deficits and currency debasement persist. Many forecasters – including analysts at UBS and Standard Chartered – still expect gold to approach $5,000 per ounce by late 2026 if macroeconomic uncertainty persists.
China’s Strategic Role in the Bullion Ecosystem
China’s influence over the gold market extends beyond consumption. The country is also a leading refiner, importer, and central bank buyer, giving it a pivotal role in setting global price momentum. The end of the VAT deduction may reduce short-term private demand, but it could simultaneously push the People’s Bank of China (PBOC) to expand its reserves as part of a broader de-dollarization strategy.
Beijing’s gold policy has long been intertwined with its efforts to strengthen financial sovereignty and hedge against Western monetary dominance. Even with higher retail costs, the state’s appetite for gold is unlikely to diminish. In fact, some analysts suggest the new rule could steer more of China’s gold flows toward institutional and strategic holdings rather than household investment.
What Comes Next
For international traders, the end of China’s tax break adds a new variable to global supply and demand dynamics. Hong Kong dealers expect an uptick in regional arbitrage, as mainland buyers seek cheaper jewelry imports, while refiners in Singapore and Dubai anticipate higher export activity to offset domestic constraints.
Despite near-term turbulence, gold’s safe-haven appeal remains intact. Investors continue to view it as protection against inflation, geopolitical risk, and weakening fiat currencies. China’s policy shift may temporarily unsettle the market, but in the long term, it reinforces a broader trend: gold is becoming less of a consumer luxury and more of a strategic asset in the new global financial order.
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Alex is an experienced financial journalist and cryptocurrency enthusiast. With over 8 years of experience covering the crypto, blockchain, and fintech industries, he is well-versed in the complex and ever-evolving world of digital assets. His insightful and thought-provoking articles provide readers with a clear picture of the latest developments and trends in the market. His approach allows him to break down complex ideas into accessible and in-depth content. Follow his publications to stay up to date with the most important trends and topics.
