UBS buyers continue to be bullish on gold: strong buying, "interest shift" expected in the Chinese market

Recently, the Chinese gold market has welcomed a key adjustment to its tax system.

The Ministry of Finance and the State Administration of Taxation have implemented a differentiated value-added tax policy for standard gold traded through the Shanghai Gold Exchange and the Shanghai Futures Exchange.

As domestic investors pay close attention, the Chief Investment Office (CIO) of UBS Wealth Management has expressed the view that the new regulations may accelerate the centralization of gold trading in China.

Zhi Shi Tang has obtained this UBS buy-side research report and summarized the key points as follows for readers.

Investors Will Experience "Interest Shift"

UBS Wealth Management pointed out: China is one of the largest gold consumers in the world, and related policies are worth monitoring. Considering the high base price, jewelry demand has been relatively weak, therefore we expect the impact of the new tax system to be relatively limited.

"The new regulations may accelerate the centralization of gold trading in China, and the continued exemption of value-added tax on gold ETFs may shift more interest in gold to its investment products," UBS Wealth Management predicts.

According to the announcement of the new regulations: Before the end of 2027, for member units or clients trading standard gold through the Shanghai Gold Exchange and the Shanghai Futures Exchange, the seller member unit or client will be exempt from value-added tax when selling standard gold. If there is no physical delivery, the exchange will exempt value-added tax; if there is physical delivery, the investment and non-investment uses of standard gold will be distinguished, and the value-added tax will be applied according to the policy of immediate collection and refund, as well as exemption from value-added tax, with the buyer calculating input tax based on a 6% deduction rate.

Gold Target Price: $4,200/oz

This UBS buy-side institution believes: The policy has little impact on global gold prices, and strong investment demand and continued central bank purchases remain the main driving forces. The recent pullback in gold seems to be more due to technical reasons rather than fundamental impacts.

"We maintain an optimistic outlook, with a target price of $4,200/oz over the next 12 months."

Strong International Capital Buying

UBS further analyzes the recent performance of international gold prices.

There are signs that investor buying remains strong. In the third quarter, holdings in gold exchange-traded funds (ETFs) increased significantly by about 222 tons, and demand for gold bars and coins exceeded 300 tons for the fourth consecutive quarter, reaching 316 tons. Jewelry demand also exceeded expectations.

UBS buy-side suggests that investors buy gold on dips, as it remains a good hedging tool in the portfolio, and current investor allocation to gold is still low.

"Historical data shows that a single-digit allocation of gold is most suitable in a diversified dollar asset portfolio. If geopolitical or financial market risks increase, it may push gold prices to $4,700/oz in an upward scenario. Additionally, with high volatility in gold options, investors may consider enhancing yield strategies," the UBS report stated