China Morning Missive Late on Friday the news came out that the tax incentive for building gold would be removed. For years, I don’t even know how long, all gold purchases by households was not subject to a 6% value added tax. That is no longer the case. Then came all of the conspiracy theories. I grant you, the timing is odd. Still, for me its Occam’s Razor. Above all else, the north star for the Beijing leadership is stability. This is doubly so when it comes to financial markets. Unlike most major global markets, the Chinese retail investor is the tail that wags the market dog. Tens upon tens of trillions of RMB sitting in bank savings can tend to do that. Price action can get insane in any asset class once a degree of real momentum starts to build. Just look at last year when the PBoC came in on multiple occasions to warn investors of the growing risk in rapidly declining market rates. Risk off was only trade on the table for retail investors and with it fixed income exposure had exploded. Market rates cratered as a result and with it required the Central Bank to step in knowing the market move was unsustainable. They took action and made comments to calm investor’s enthusiasm. The same holds with gold today, in my opinion. There was the rapid rise and then the rapid reversal. Instability. Looking at what tools were available, removing the 6% VAT exclusion just made sense to temper investor’s “irrational” appetite. Might there be more behind the decision made? Of course, but I’m not seeing or hearing anything at the moment. We will see if that changes at all in the coming days or weeks.

Yahoo News

China scraps gold tax break, sending shockwaves through global bullion market

BEIJING, Nov 1 — China has abolished a long-standing tax incentive on gold sales in a move that could raise costs...