Sou Hu Cai Jing·2025-11-03 12:00Core Viewpoint - The new VAT regulation on gold in China has officially come into effect, significantly impacting retail jewelers and non-exchange member companies, leading to a sharp decline in stock prices of major gold retailers and a drop in spot gold prices [1][3]. Summary by Sections New VAT Regulation - The new regulation, effective from November 1, 2023, allows only members of the Shanghai Gold Exchange and Shanghai Futures Exchange to sell standard gold without VAT. Non-member companies must pay VAT, which has been reduced from 13% to 6% for non-investment gold products [5][11]. - This policy is set to last until the end of 2027 and aims to encourage purchases from exchange members, reducing off-the-books transactions [5][11]. Impact on Retailers - Retailers are expected to face increased costs, with estimates suggesting a potential 7% rise in costs that may be passed on to consumers through price increases [3][4]. - Different jewelers will experience varying levels of impact, with Lao Feng Xiang and Chow Tai Fook being more vulnerable due to their business models and inventory turnover rates [6][7]. Market Reaction - Following the announcement, stocks of major gold retailers such as Lao Poo Gold and Chow Tai Fook saw significant declines, with Lao Poo Gold dropping over 9% and Chow Tai Fook falling by 12% [1][2]. - Spot gold prices also fell, briefly dipping below $4,000 to $3,970 per ounce [1]. Demand and Pricing Dynamics - The demand for weight-based gold jewelry is expected to be more adversely affected due to consumer price sensitivity, while fixed-price gold jewelry may see less impact [8]. - Analysts predict that brands will likely increase retail prices to offset the new costs, which could lead to a notable demand shock in the mass market [8]. Broader Market Implications - The changes in tax policy are anticipated to affect global gold market sentiment, given China's status as the largest gold consumer [4][11]. - Despite recent price corrections, the fundamentals supporting gold prices, such as central bank demand and investor interest in safe-haven assets, are expected to remain strong [8].