The gold market is down slightly in early trade Monday as the new trading week gets underway. The market does have several key underlying bullish factors at play, however, including news that Russia is considering the elimination of its gold tax.
The Gold Tax
According to a report from RT.com, the Russian Finance Ministry is considering a move that would provide Russian savers with the option of investing in gold rather than foreign currencies. A complete abolition of the Value Added Tax, or VAT, on gold purchases could potentially encourage the return of tens of billions of rubles to the country.
The current VAT rate is set a 20 percent on purchases. The tax is paid when gold is purchased but is not returned when the gold is sold. The tax has kept a lid on demand in the country, which currently sits around 3 tons per-year. Some experts have reportedly suggested that if the tax is dropped, demand could potentially skyrocket to 50 to 100 tons per-year.
A removal of the VAT on gold purchases has previously taken place in other nations including China and Kazakhstan, which reportedly recorded a significant increase in demand following the abolition of the tax.
The Dollar Could Lose Out
Such a move by the Russian Finance Ministry could have significant implications for the U.S. dollar. Given the current global economic and geopolitical landscapes, investments in gold could be viewed as preferential to investments in dollars. Such a move could serve to continue a move away from dollars that has been seen to a degree in Russia and elsewhere.
Market Reaction
The market has several factors working against it today including a stronger dollar index and increasing appetite for risk. With no major economic reports set for release today, the markets will focus on the ongoing U.S./China trade negotiations taking place this week in Beijing. The potential for another U.S. Government shutdown later this week has the potential to fuel risk aversion if a deal does not appear to be in the making.
The gold market remains in a firm uptrend and buyers have stepped in to buy the dips. The market could potentially be seeing some price consolidation before starting a fresh leg higher. The next key upside target for the bulls is in the $1,330 area reached in January. On the downside, the $1,300 area should see some major support.
Gold Price Chart
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