China’s recent tax policy overhaul on gold is expected to drive a surge in on-exchange trading, as investors shift from jewelry and physical bullion to more cost-efficient exchange-traded funds (ETFs), according to industry insiders.

Effective November 1, the new rules stipulate that retailers can no longer offset value-added tax (VAT) when selling gold purchased from the Shanghai Gold Exchange and Shanghai Futures Exchange. The change effectively increases the cost of physical gold jewelry and certain investment-grade bullion.

However, gold traded without physical delivery—including ETFs and virtual gold products offered by banks—remains exempt from VAT, making these instruments more attractive to investors seeking lower transaction costs and easier liquidity.