Gold prices bounced back to about $4,011 per ounce on Monday morning, recovering from an earlier dip as investors weighed fresh signals from the United States Federal Reserve (Fed) and a major policy shift in China, two forces now reshaping the global bullion market.
The rebound came after last week’s rate cut by the Fed, which Chair Jerome Powell suggested might not be repeated in December. Powell pointed to the ongoing US government shutdown and limited economic data as reasons for caution. His remarks cooled earlier hopes for more aggressive rate easing, with market odds for another cut in December sitting at around 60%, down from over 90% before his comments.
At the same time, optimism from a new trade understanding between the United States and China has softened the appeal of gold as a safe haven. Presidents Donald Trump and Xi Jinping agreed to extend their tariff truce, relax some export restrictions, and open the door for smoother trade flows during their meeting in South Korea last Thursday. That thaw in tensions lifted broader market sentiment, but it came with a surprising twist from Beijing that could ripple through global gold demand.
In a move that caught traders off guard, China scrapped a long standing tax incentive on gold sales effective November 1. The Ministry of Finance announced that retailers will no longer be allowed to offset value added tax (VAT) when selling gold bought through the Shanghai Gold Exchange, whether in investment form, such as bars, coins, or ingots, or as jewellery and industrial products.
That may sound like a small technical adjustment, but it’s significant news for the world’s largest gold consumer. For years, the tax offset helped Chinese retailers keep prices competitive and margins steady. Now, with the perk gone, those costs will likely be passed down to buyers, potentially lifting retail gold prices and dampening demand among middle class consumers already feeling the pinch from a slow economy and the country’s property slump.
Analysts say the timing of the decision reflects Beijing’s need to shore up tax revenues and tighten oversight of bullion trade. The change could make gold less attractive domestically, at least in the short term, just as Chinese consumers were returning to jewellery stores after months of sluggish spending.
Globally, the change adds a new layer of uncertainty to a market already juggling interest rate expectations, currency swings, and shifting investor appetite. While the easing of trade tensions may reduce safe haven buying, a slowdown in Chinese demand could also limit price momentum at a time when gold is hovering around record highs.
The Fed’s October 29 rate cut of a quarter percentage point marked the second consecutive reduction in borrowing costs. Powell made clear that future moves would depend heavily on economic data, but the government shutdown has prevented the release of key statistics that officials typically use to guide their decisions. That data drought creates additional uncertainty about the central bank’s path forward.
Interest rate swaps now show traders see roughly a 60 percent probability for another quarter point cut when Fed policymakers meet in December. That represents a sharp decline in expectations following Powell’s cautious tone at his post meeting press conference last week.
The combination of factors creates a complex environment for gold investors. Lower interest rates typically support gold prices because the metal offers no yield, making it more attractive when returns on bonds and savings accounts fall. However, improving trade relations between the world’s two largest economies could reduce the geopolitical anxiety that often drives investors toward precious metals.
China’s tax policy reversal adds another variable to the equation. The country accounts for roughly a third of global gold demand, with much of that coming from retail purchases of jewellery and investment bars. Any significant pullback in Chinese buying could put downward pressure on international prices, even as other factors remain supportive.
Some market watchers suggest the tax change might be temporary or could be adjusted if it proves too disruptive to the domestic gold market. Beijing has occasionally reversed course on economic policies when they produce unintended consequences. For now, though, Chinese retailers must navigate the new landscape without the tax advantage they’ve relied upon for years.
The Shanghai Gold Exchange serves as the primary marketplace for physical gold trading in China. The government tightly controls gold imports and requires most transactions to flow through the exchange, giving authorities significant oversight of the domestic market. The new tax policy reinforces that control while potentially generating additional revenue for the state.
Gold remains a barometer of global mood, a metal that shines brightest when investors grow nervous. Though Monday’s rebound showed resilience, the world’s oldest store of value may face a more complicated path ahead, shaped as much by central bank caution as by Beijing’s bold tax experiment. The coming weeks will reveal whether the US China trade détente holds and whether Chinese consumers absorb the higher gold costs or pull back from purchases.
