January 28, 2010: China's monetary tightening has been so far been extremely limited; no reason to spook the global commodities market The price of gold on global markets fell 1.3% on Wednesday as international investors continued to worry about the impact of weakening demand from China. Gold for February delivery closed at US$1,084.5 an ounce; metals including copper, silver, platinum and palladium also fell. Regulators in Beijing have been keen to slow the rate of lending growth and stimulus spending; easy access to liquidity and heavy spending on stimulus-related projects have contributed to significant rises in global commodity prices. It may be too early to tell if the movements were short-term reactions to news of increasing credit restrictions within China – Industrial and Commercial Bank of China (ICBC) and China CITIC Bank became this week the latest commercial lenders ordered to halt lending until the end of January – or if they represent something more permanent. Given that some commodities – particularly copper – saw their prices rise toward the end of last year on the back of hoarding by Chinese traders, tighter credit rules may push down domestic demand and global prices. However, given that tightening measures so far have in fact been extremely limited in nature, it's unlikely that they will in fact lead to a drop in demand for most commodities. Slightly lower commodity prices overall would not have a significant impact on China's broader population. Much as high commodity prices are not fed into consumer inflation due to strong competition that keeps price increases off of store shelves, slight decreases are more likely in the short term to feed into meager corporate profits than create opportunities for discounts.

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