Beijing's New Policy Causes Gold Prices to Plunge! What Impact Will It Have on Global Investors?
Global gold prices were depressed in trading on Thursday after the Chinese government officially ended tax rebates previously granted to domestic jewelry and gold bullion retailers. This move sparked concerns that retail demand for gold in China—the world's largest consumer—would decline sharply.
China's Ministry of Finance announced Wednesday evening that tax incentives for large jewelry stores and precious metals distributors would be revoked starting November. This new policy is part of Beijing's efforts to restructure the fiscal system and reduce speculative consumption of high-value assets like gold.
"The government wants to curb excessive purchases of gold that are unproductive to the real economy," read an official statement from the Ministry of Finance, as quoted by China Daily.
In the international market, spot gold prices (loco gold) fell sharply to around US$3,998 per troy ounce, down around 0.2% compared to the previous session. The largest decline was recorded in the Asian session, after data showed a decline in gold order volumes from large distributors in Shanghai and Shenzhen.
According to OCBC Bank senior analyst Howie Lee, this new fiscal policy will change the dynamics of the Asian gold market.
"Tax cuts have significantly boosted physical gold consumption. When these benefits are removed, retailer profit margins shrink and consumer prices rise—the knock-on effect is slowing retail demand," Lee explained.
China and India account for more than 50% of global gold consumption. Therefore, even a small change in China's tax policy could immediately shake the global market.
Fundamentally, this policy is expected to suppress gold imports into China in the coming months. Large importers will likely adjust supply volumes to reflect lower domestic demand projections.
Global investors interpret Beijing's move as a signal of tightening consumption and shift to dollar assets, depressing gold prices on the New York COMEX futures exchange.
However, some analysts believe this move is actually positive in the long term because it strengthens China's macroeconomic stability.
"Beijing is working to normalize fiscal policy and contain domestic inflation. If these reforms are successful, investment demand for gold could actually increase in the future," Rhona O'Connell, head of precious metals research at StoneX Financial Ltd., told Bloomberg.
Technically, global gold prices are currently moving in a healthy correction pattern after a long rally in October. Strong support is seen in the US$3,980–3,950 area, while resistance is at US$4,050 per troy ounce.
As long as prices remain above this support, technical analysts assess that gold's medium-term trend remains bullish, although short-term momentum is starting to weaken.
The Relative Strength Index (RSI) indicator is showing a level of 47—approaching the neutral zone—indicating potential consolidation before the next move.
China's move to end tax breaks for gold retailers is putting negative pressure on gold prices in the short term, as the market expects retail demand to decline. However, on the other hand, this fiscal reform could signal long-term stability for the Chinese economy, which could ultimately restore gold's appeal as a global hedge.
"Investors are currently looking at short-term risks, but the gold market still has strong fundamentals. If China's economy stabilizes and the Fed continues to cut interest rates, the bullish trend could revive," wrote Reuters Market Watch in a report.
Source: Newsmaker.id
