Precious metals, which had been on a sustained upward trajectory, experienced a "collapse-like" plunge. As of the close on January 31, London gold was quoted at $4,865.35 per ounce, down 9.45%. This marks the largest single-day decline in nearly 40 years.
Other precious metals were not spared either. Silver closed down 26.77% at $84.7 per ounce, also recording its most significant daily drop since early 1980. Additionally, spot platinum plunged approximately 18%, and spot palladium tumbled around 15%.
On the morning of January 31, a visit to Shenzhen's Shuibei market, China's core gold and jewelry trading hub, revealed the market's trading reality following the sharp price drop. Regarding the recent decline in gold prices, one material supplier indicated they would lock in their positions and refrain from selling.
"The materials are hard to obtain right now," explained one merchant regarding suppliers holding back shipments. This was attributed to both the sharp drop in gold prices and the approaching Spring Festival, which has left suppliers overwhelmed with orders they cannot process.
Some material suppliers have chosen to temporarily halt sales. "Two days ago, the gold price was over 1,200 yuan per gram; today it's 1,126.5 yuan," stated a merchant specializing in gold bars during the visit. The current price for gold bars is the spot price plus a 15 yuan workmanship fee, making the final price 1,141.5 yuan per gram—a drop of over 50 yuan compared to the price two days prior. When asked if the price would change further that day, the merchant indicated one must wait until Monday, as "It's the weekend; the gold price won't fluctuate."
Amid the falling gold prices, some merchants in Shuibei reported that gold bars were currently out of stock because "materials are not easy to get."
Merchant Zhang Li explained that with the recent sharp price drop, when she sells a gold bar to a customer, she must first order a bar from a supplier at a fixed price to lock in the cost and avoid losses.
"Once you buy it, I have to place the order and fix the price immediately," she said. She added that suppliers have not been selling much material recently, noting, "Since yesterday, they have hardly been releasing any material."
Interviews revealed that the "material suppliers" referred to by merchants are those who buy and sell gold to merchants in Shuibei. These suppliers typically purchase gold at locked prices from the Shanghai Gold Exchange, but since the previous day, they have gradually reduced their sales.
"There are two main reasons," Zhang Li explained. "First, with the sharp price drop, suppliers are hesitant to gamble, as selling at high acquisition prices would mean losses. Second, with the Chinese New Year approaching, suppliers have received too many orders and cannot process them all." For instance, if a supplier locked in a price of 1,200 yuan per gram on the Shanghai Gold Exchange and the price falls to 1,195 yuan, the supplier would lose 5 yuan per gram.
"Those who frequently speculate on market trends go bankrupt quickly; many merchants have encountered problems," Zhang Li remarked.
"Silver is being sold at a fixed price, but gold materials are hardly being released," one supplier stated. Suppliers also have costs; facing such a sharply declining market, they basically stop selling because they cannot replenish inventory at a profit. "We'll just treat these few days as a break."
"With such large price fluctuations, few merchants dare to sell you gold bars. For example, yesterday's market showed a 'V-shaped' pattern; right after I finalized a customer's order, the price rose. There was nothing I could do. These days, selling gold bars can only mean increasing the workmanship fee slightly," another merchant commented.
"We won't sell when it's falling like this," a gold material supplier asserted.
Against the backdrop of scarce gold materials, some merchants stated that gold bars are now available on a "first-come, first-served" basis. When asked if anyone was "buying the dip," some merchants mentioned that people were still purchasing bars yesterday, "mainly because they are bullish on gold's long-term price."
Some leveraged traders faced liquidation after shorting. At 3 a.m. on January 31, discussions were rampant in numerous gold trading chat groups. Some complained about turning profits on January 29 into losses the very next day.
The sudden market turmoil left many bewildered. Even traders who had taken short positions were not spared. Li Liang was one such individual. After a long silence in response to questions, he finally said, "What is there to say? I got liquidated shorting the market."
"I was scared of a drop when it was rising, and I didn't short in time when it started falling. The platform I use offers 2000x leverage. It shouldn't have led to liquidation, but I placed a couple of losing orders during the decline and didn't stop. I thought I could keep going; I was too emotional. I opened a few more positions when it was around $4,700 per ounce, but then the market rebounded sharply to around $4,900. While I was still hesitating, I got wiped out. I don't want to move now; who knows what Monday will bring?" Li Liang said.
Other investors in the groups lamented, "Got caught as soon as I entered a couple of days ago," and "I made 8,000 yuan from last year until now, but lost it all in this move." Discussions were widespread about whether gold would continue to fall. Some planned to buy the dip, while others intended to "exit" at the right opportunity.
Furthermore, many investors who purchased gold accumulation plans from banks were also affected. "I lost 80,000 yuan in a single day," one investor stated. She had bought some gold around New Year's Day, sold part of it without making much profit, and subsequently invested more. A screenshot of her gold account showed a holding of 675 grams. "Yesterday, when my floating profit was 55,000 yuan, I thought I'd wait until it reached 60,000 to sell. But then, in the evening, a 'waterfall' drop turned the profit into 30,000 yuan. Today, the profit vanished entirely, and I'm now sitting on a 40,000 yuan loss."
Trump's Nomination for Next Fed Chair Emerges as Direct Factor Influencing Gold Trading Against a backdrop of simmering geopolitical uncertainty and rising market expectations for Federal Reserve rate cuts within the year, safe-haven funds had flooded into gold and silver markets since the start of the year.
Spot gold prices accumulated a gain of approximately 13% in January. However, on the final trading day of the month, gold plummeted over 12% at one point, diving from $5,400 to briefly fall below $4,700. Concurrently, the U.S. dollar index surged 0.9%, the 10-year Treasury yield climbed to 4.24%, and the S&P 500 index dipped slightly by 0.4%.
HuaAn Fund pointed out that the perceived "hawkish" policy expectations associated with the new Fed Chair nominee have become a direct factor affecting gold trading. On January 30, Kevin Warsh was nominated by Trump for the position of Fed Chair. Compared to other candidates, Warsh holds a relatively "hawkish" stance: advocating for balance sheet reduction, emphasizing monetary discipline, and maintaining a cautious approach towards easing policies. This has altered market expectations regarding the Fed's future policy path. Previously, the market had bet on candidates like Hassett or Reed, who were expected to prioritize coordinating with fiscal policy through aggressive rate cuts. Warsh's nomination triggered a repricing of tightening expectations, leading to a short-term correction in trading logic.
Ye Qianning, a precious metals researcher at GF Futures, stated that based on the attitudes of the previous Fed Chair candidates, Warsh's support for a monetary policy combining "rate cuts with balance sheet reduction" is relatively more "hawkish." In the current context of market concerns about the Fed's independence being challenged, his former role as a Fed Governor could facilitate internal communication. Furthermore, his lack of blind adherence to the Trump administration's push for rapid rate cuts is likely to gain market recognition. The key impact of Warsh's potential appointment lies in whether, during the U.S. mid-term elections in the second half of the year, he can effectively balance employment and inflation issues through a "rate cuts + QT" policy, thereby boosting dollar-denominated assets and dampening demand for precious metals. However, if U.S. economic downward pressure persists, gold could benefit from its safe-haven attributes.
Zeng Gang, Chief Expert and Director of the Shanghai Finance Institute, stated that Warsh's nomination impacts the market multi-dimensionally. Firstly, it involves a repricing of policy expectations: the market generally interprets Warsh as a relatively "hawkish," "establishment" candidate emphasizing anti-inflation discipline. This has pushed the dollar index and Treasury yields higher in the short term, pressured valuations of risk assets, and caused historic volatility and a "stampede-like" correction in gold and silver. Secondly, uncertainty premiums have risen: the nomination requires Senate confirmation, and debates during the process regarding Fed independence and its relationship with the White House could amplify market volatility. Institutions like Mizuho Securities and Carson Group noted that his "balance sheet swap" ideas might cause periodic turbulence.
The Federal Open Market Committee operates on a collective decision-making mechanism where the Chair has only one vote, and any policy action requires majority committee approval. Thus, Warsh's actual power to steer monetary policy shifts is limited. Additionally, while Warsh advocated for prompt balance sheet reduction post-crisis and opposed excessive quantitative easing, he is not unconditionally opposed to rate cuts but emphasizes being "data-dependent" and maintaining a "cautious pace." If subsequent economic data weakens or his communication turns more moderate, the market may correct its current overly "hawkish" pricing. Short-term, this is favorable for the dollar and negative for gold; long-term outcomes depend on the interplay between actual policy implementation and economic fundamentals.
After a Sharp Rally, a Dramatic Plunge: What's Next for Gold? From a trading perspective, HuaAn Fund noted that gold's implied volatility surged significantly in January, indicating accumulating risk factors. Both the at-the-money implied volatility for Shanghai gold futures and the CBOE Gold ETF Volatility Index breached 40, signaling intensified gold price swings. In a high-volatility environment, irrational market sentiment can easily be amplified. This is particularly true given gold's monthly gain一度 reaching 20%, which strengthened the momentum for profit-taking.
With gold recording its largest historical amplitude, the market's focus is squarely on its future trajectory.
Zhang Juntao, Senior FX and Commodities Researcher at Industrial Research, suggested that the short-term technical correction following excessive gains might lead to a consolidation period lasting 3 to 6 months.
Zeng Gang indicated that in the short term, after an "epic surge" early in 2026, gold and silver experienced a sharp plunge. Silver's gains in January一度 approached 50%, with an intra-month amplitude of 40%, while gold corrected after hitting a record high 53 times. This "rollercoaster" resulted from a combination of three factors: excessive prior gains leading to profit-taking, Warsh's nomination reinforcing "hawkish" expectations triggering long position unwinding, and significant pressure for "mean reversion" due to large disparities between silver futures and spot prices. Some market institutions pointed out that gold's volatility is already above the 90th percentile since 2008, significantly raising the risk of short-term fluctuations and corrections.
Simultaneously, Zeng Gang stated that from a medium to long-term perspective, institutional consensus leans towards a "continuation of the moderate bull market, albeit with moderated gains." Supporting logic includes: improved opportunity costs for non-yielding assets due to the Fed's rate-cutting cycle, continued central bank gold purchases (demand reached a record 5,002 tons in 2025), and geopolitical tensions and "de-dollarization" narratives. Silver additionally benefits from industrial demand and a supply deficit for the fifth consecutive year (approximately 95 million ounces). Therefore, the current phase resembles "high volatility within a bull market" rather than necessarily a trend reversal, but it will likely transition from a unilateral surge into a stage of "wide fluctuations and consolidation."
Ye Qianning believes that the latest World Gold Council report shows global gold demand surpassed 5,000 tons for the first time in 2025, reaching a record 5,002 tons. Investment demand replaced jewelry consumption as the largest source of demand, with retail and institutional investors becoming the dominant purchasing forces. On one hand, central bank purchasing slowed by one-fifth to 863 tons, lower than the 2022-2024 levels but still relatively high. On the other hand, investment demand surged 84% to a record 2,175 tons. Gold ETF holdings increased by 801 tons, ending four consecutive years of outflows, while bar and coin purchases jumped 16% to 1,374 tons, a 12-year high. From a medium to long-term view, although Fed monetary policy is turning cautious in the short term, it hasn't altered long-term expectations for easing or concerns about trade frictions and geopolitical risks. Global mainstream institutions are increasing their allocation to precious metals against the "de-dollarization" backdrop, and central bank buying demand is expected to remain strong, providing support for prices. Thus, prices possess upward potential in the medium to long term.
(Disclaimer: The content and data in this article are for reference only and do not constitute investment advice. Please verify before use. Any actions taken based on this information are at your own risk.)
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