Gold and Mining Stocks Retreat as China Scraps Key Tax Incentive
The policy shift is expected to increase costs for consumers in the world's top gold market, raising concerns about near-term demand for bullion.
Global gold prices and shares of major mining companies fell on Friday following reports that China's Ministry of Finance is ending a significant tax break on gold sales, a move that threatens to curb demand in the world's largest market for the precious metal.
The policy change, which removes a key Value-Added Tax (VAT) incentive, is expected to increase the final cost of gold for Chinese consumers and retailers. The news sent immediate ripples through the market, which has relied on strong Chinese demand—accounting for nearly 20% of global consumption last year—to support bullion's recent surge.
Spot gold (XAU/USD) reacted to the news by falling 0.5% to close the day at $4,004.43 per troy ounce. The move capped a weekly decline of 2.58%, though prices remain up 46.35% year-over-year, underscoring the powerful rally that has defined the market.
The impact was more pronounced in the equities of gold producers, which are highly sensitive to shifts in bullion prices and demand forecasts. The VanEck Gold Miners ETF (GDX), a widely held industry benchmark, fell over 1.1%. Industry giants Newmont (NEM) and Barrick Gold (GOLD) saw their shares decline 1.63% and 0.79%, respectively, during Friday's trading session.
Analysts are now parsing the potential fallout for the fourth quarter. The primary concern is that higher domestic prices in China could dampen the country's robust retail demand for gold bars, coins, and jewelry. According to reports from Business Today, the end of the tax break will remove a critical subsidy that has supported the market's high volumes.
Despite the near-term headwinds from Beijing's policy shift, some analysts believe the long-term bull case for gold remains intact. The market has been heavily supported by factors outside of retail demand, including aggressive purchasing by global central banks seeking to diversify reserves away from the US dollar and persistent geopolitical uncertainty.
Furthermore, sentiment in Western markets remains optimistic, with many investors anticipating potential interest rate cuts from the U.S. Federal Reserve. Lower rates typically reduce the opportunity cost of holding non-yielding assets like gold, increasing its appeal. Some market experts are maintaining bullish forecasts, citing the strong institutional buying and macroeconomic tailwinds.
For now, investors will be closely watching for signs of how significantly Chinese consumer behavior is altered by the higher prices. The development introduces a new variable into a complex market, pitting a potential slowdown in retail demand against the powerful forces of institutional and sovereign buying that have kept gold prices near historic highs.