After a period of surging gains, gold suddenly hit the brakes, recording its largest single-day drop in 40 years during the evening session on January 30. By the close, spot gold had fallen 9.25% to $4,880 per ounce. Li Gang, Research Director at the China Foreign Exchange Investment Research Institute, analyzed that the rapid decline in gold was primarily the result of a confluence of sentiment and fundamental factors. This round of a "dive" appears more like a swift correction to previously overheated sentiment rather than a reversal of the medium- to long-term trend. Most institutions remain optimistic about gold's medium- to long-term performance. However, given the recent extreme one-sided market movement, some institutions suggest that the subsequent corrective trend may extend further in the short term. For retail investors and some merchants, the current moment is also one of anxiety. Some merchants mentioned that with gold prices experiencing violent fluctuations, the industry is facing a rare difficulty in sourcing gold raw materials. While some investors see the sharp price drop as an opportunity to "get in," merchants are conflicted about whether to sell their inventory due to "fears of being unable to buy raw materials." Several interviewed experts indicated that with gold prices currently at high levels and volatility increasing, risks have also risen, necessitating greater caution from investors.
The market overheating led to a gold correction. Spot gold first broke through $4,700 per ounce on January 20, and within just seven trading days, it surged past $5,500 per ounce during the session on January 29. Following this rare, sharp rally, spot gold began to adjust on the evening of January 29, relinquishing gains from several previous days. According to Li Gang's analysis, the earlier price surge, driven by rising uncertainty around Federal Reserve policy and heavy market betting on future easing, propelled gold to historic highs in one go, leading to extremely crowded long positions. In such a scenario, even a slight change in fundamentals, such as a strengthening US dollar due to expectations of a more hawkish stance from the new Fed Chair, was enough to trigger substantial profit-taking. As programmatic trading and CTA models simultaneously reduced positions, the decline was further amplified. The view from China Merchants Bank Capital Market Research Institute is similar. In a research report published on the afternoon of January 30, they mentioned that the core driver of gold's previous accelerated rise was a rapid surge in safe-haven sentiment, while the root cause of this decline is an overheated market. As gold prices rose sharply, the market's ascent slope became extremely steep, some market indicators showed signs of overheating, and speculative funds had motivation to take profits.
The extreme volatility in gold has also left some retail investors feeling anxious. Some investors who rushed in during the recent大涨 are now left "holding the bag" at high prices, while others who hadn't bought previously are hesitating, wondering if the current moment is a good opportunity to "get in." On the afternoon of January 30, Liu Huawei, Director of Bank of China Gold Northern Company, reported that on January 29, prices rose during the day only to fall in the evening, a situation where both longs and shorts got squeezed, making it very difficult for merchants as well. In the past three days, it has become extremely difficult to purchase gold raw materials within the industry, a situation not seen for many years. Some consumers, seeing the price drop, believe the opportunity to "get in" has arrived, but merchants are torn about whether to sell, fearing they won't be able to replenish their gold supplies.
Gold investment demand has hit a record high. Over the past two years, gold has undoubtedly been one of the most standout investments. According to World Gold Council statistics, 2025 was the strongest year for the RMB-denominated gold price; after rising over 20% in 2024, the RMB gold price surged nearly 60% in 2025. A World Gold Council report indicated that in 2025, Chinese investors cumulatively purchased 432 tonnes of gold bars and coins, a 28% increase compared to 2024, setting a new annual record high. Globally, Chinese investors' purchasing power for gold bars and coins is also quite substantial. In 2025, combined demand from the Chinese and Indian markets accounted for over half of the global total. Regarding gold ETFs, full-year 2025 inflows reached 110 billion RMB (approximately 133 tonnes). Total Assets Under Management (AUM) for gold ETFs surged by 243% to 241.8 billion RMB; holdings more than doubled, increasing to 248 tonnes, with both figures hitting record highs. Jia Changshu, Head of Research, Asia Pacific (ex-India) and Deputy Director, Industry Development, China, at the World Gold Council, mentioned during a media exchange on January 29 that China's gold ETF inflows in 2025 had entered the global top three, second only to the US and UK. Given that China's market started from a relatively low base of holdings, the current situation better illustrates an acceleration in the pace of inflows, indicating a growing recognition and willingness among domestic investors to allocate to gold as a safe-haven tool.
Investor enthusiasm for gold investment has continued unabated this year. Wind data shows that from the start of 2026 to date, domestic gold ETF fund sizes have continued to show a net inflow trend, with a combined scale increase of over 30%.
Institutions maintain a bullish long-term outlook for gold. Looking ahead, institutions generally remain optimistic about gold. For instance, China Merchants Bank Capital Market Research Institute believes that over the past 20 years, gold's trading logic has primarily been anchored to liquidity changes. Currently, the market is more focused on the reshaping of US dollar credibility and the restructuring of the global order, with its rising pace significantly surpassing that of previous bull markets over the last two decades. Drawing parallels to the gold bull market during the collapse of the Bretton Woods system from 1970-1974, they suggest that after this round of adjustment concludes, gold prices still have room to rise, potentially challenging $6,500 per ounce for the full year. Other institutions, while forecasting lower price targets, also believe gold prices will continue to rise. For example, Goldman Sachs raised its gold price forecast for December 2026 to $5,400 per ounce, citing supporting factors including continued gold reserve accumulation by some central banks, potential Fed rate cuts, and hedging against global macro policy risks. Wang Lixin, CEO of the World Gold Council China, stated that from a long-term perspective, gold's purchasing power value remains unchanged. In recent years, interest rate changes had a significant impact on gold's trajectory, but now risk factors play a more prominent role. Currently, factors such as international turmoil, rising resource prices, and inflation expectations all provide support for gold prices. Jia Changshu added that while trading in the gold futures market is very active, open interest hasn't changed significantly; investors are shifting more towards allocations in physical gold bars and gold ETFs, reflecting a more strategic allocation rather than tactical short-term trading. Using the MSCI World Equity Index as a benchmark, gold's relative value has not shown significant deviation. Compared to the equity market, the total holdings of gold ETFs plus net long futures positions account for less than 1.5% of global stock market capitalization.
With increased gold price volatility, investors must exercise caution. Following the record-high gold investment demand in 2025, gold is expected to remain a favorite for many investors in 2026. According to analysis by the World Gold Council, strong gold investment demand in the Chinese market is likely to continue into the first quarter of 2026. On one hand, consumer self-reward purchases and gifting demand ahead of the Spring Festival are expected to provide some support, partly driven by a gold VAT reform that has prompted many buyers of gold jewelry with investment motives to shift towards investment products. On the other hand, ongoing evolution in global and regional geopolitical landscapes, coupled with economic growth uncertainties, will keep safe-haven demand elevated. However, it must be noted that with current gold prices in a high range and volatility significantly increased, investors need to be much more cautious in their decision-making. The recent incident involving Shenzhen Shuibei Jie Wo Rui's "blow-up" further highlights the numerous hidden risks in the hot gold investment market, especially for retail investors. China Merchants Bank Capital Market Research Institute cautioned that following this month's extreme one-sided market movement, momentum for a market correction is still accumulating, and the subsequent adjustment trend may extend further. They advised tactical investors to remain vigilant and guard against market volatility risks. Wang Lixin stated that rapid price increases in gold can easily trigger speculative sentiment and even leveraged behavior. However, as current prices are already high, the same percentage increase translates to greater absolute volatility and funding pressure, thereby increasing high-level risks. Investors should maintain risk awareness, avoid blindly going "all in," and treat gold as a long-term asset allocation rather than a short-term speculative tool. He also emphasized that if investors participate in gold investment, they should conduct business through member institutions of the Shanghai Gold Exchange and licensed financial institutions, staying away from non-standardized trading. Li Gang also offered advice to investors. He suggested that investors already holding gold should consider moderately reducing their positions, gradually shifting from trading-oriented holdings to more stable allocation-oriented holdings, while locking in some profits in batches. In the current environment of frequent news and sensitive market sentiment, tools like options could also be used to hedge against risks of short-term sharp fluctuations. For investors not yet in the market, he advised against blindly chasing the highs. A more prudent strategy would be to observe whether new support levels form after a price pullback before entering the market opportunistically. If investors are bullish on gold's medium- to long-term performance, they could adopt a strategy of small,分批 investments to smooth out volatility by reducing risk at any single price point. "Overall, gold is still supported by medium- to long-term logic, but high-level volatility will become the norm. In such an environment, an investor's position management, timing choices, and risk control are more important than directional judgment," Li Gang stated.
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