On February 2nd, the sharp decline in precious metals showed no signs of abating, with prices for multiple varieties experiencing another significant plunge. Among them, spot London gold successively broke through several key psychological levels at $4,700, $4,600, and $4,500, coming perilously close to falling below $4,400, with an intraday maximum drop of approximately 10%. However, after the price fell below the 60-day moving average, gold staged a noticeable rebound. By 18:00, spot London gold had recovered to above $4,700, narrowing its daily loss to 3.69%. Since January 29th, the price of London gold has tumbled nearly $700 from its historical peak of $5,598.75 per ounce, marking a three-day decline of 12.81%. This extreme volatility has intensified scrutiny over its future trajectory—can the gold bull market continue?
A Battle Between Bulls and Bears Following three consecutive days of significant declines, gold's year-to-date gains have been substantially eroded. From the start of the year until January 29th, the maximum year-to-date gain for spot London gold had approached 30%; by 18:00 on February 2nd, this gain had shrunk to just 9.1%. Nevertheless, chart analysis reveals that the candlestick for February 2nd formed a long lower shadow, indicating strong support for the London gold price and reflecting intense battling between bullish and bearish forces. Market analysis attributes this sharp gold sell-off partly to former US President Donald Trump's nomination of Kevin Warsh, a former Federal Reserve Governor, for the next Fed Chair on January 30th, which exacerbated the precious metals decline. Warsh has publicly criticized the side effects of quantitative easing and advocates for closer policy coordination between the Fed and the US Treasury. Simultaneously, the core Producer Price Index (PPI) data for December 2025 and the full year, released by the US Labor Department on January 30th, exceeded economists' forecasts, suggesting that inflation is gradually becoming embedded in the broader economy. Rising producer prices could force the Fed to maintain a "neutral" monetary policy stance for longer than anticipated, which is bearish for gold. Combined with the explosive price surge over the preceding month, some analysts viewed the market sell-off as inevitable. Wang Hongying, President of the China (Hong Kong) Financial Derivatives Investment Research Institute, analyzed that the recent plunge in precious metals prices essentially represents a fierce battle of conflicting views on the future direction between bulls and bears. On one hand, major international investment banks and leading domestic securities firms widely believe gold's first target price will reach $6,000 per ounce. On the other hand, the substantial earlier price surge caused significant paper losses for short sellers, creating potential risk hazards in the market. Furthermore, at a critical technical overbought juncture, Trump's nomination of a perceived hawkish Fed Chair candidate spurred a sharp short-term rise in the US Dollar Index, further suppressing the upside potential for precious metals. Wu Zewei, a Special Researcher at SuShang Bank, added that the current intense battle fundamentally reflects a tug-of-war between "swinging macro narratives" and "micro fundamental support." Bearish pressure primarily stems from trading dynamics: firstly, revised expectations regarding Fed policy independence and the pace of easing triggered an exodus of trend-following capital; secondly, the extreme prior rally led to a concentrated release of technical overbought pressure and profit-taking. Bullish strength, however, is rooted in structural support: long-term investment demand, including consistent central bank gold buying, remains solid, and deep-seated concerns about US dollar credibility and geopolitical risks persist. "This conflict makes the market highly sensitive to any news, amplifying volatility."
A Structural Correction Amidst the sharp price adjustment, the market's focus is whether the fundamental logic supporting gold's long-term uptrend remains intact. According to World Gold Council statistics, global gold demand in 2025 historically surpassed 5,000 tonnes for the first time, with investment demand and central bank purchasing remaining robust. Not only did UBS Wealth Management raise its gold price target for the first three quarters of 2026 to $6,200 per ounce on February 2nd, citing ongoing concerns about Fed independence, persistent geopolitical tensions, and uncertain policy environments as continuing supports for gold demand, but Huayuan Securities and CITIC Securities also expressed similar optimistic views in recent reports. Huayuan Securities emphasized that policy expectations during the "Trump 2.0" era and the global trend towards rate-cut trading would continue to provide upward momentum, with central bank buying forming crucial underlying support. CITIC Securities projected that gold prices could reach the $6,000 level in 2026. A report released the same day by China International Capital Corporation (CICC) highlighted a more profound key shift: when gold prices stood above $5,500, the estimated total value of global above-ground gold stocks was approximately $38.2 trillion, roughly equivalent to the $38.5 trillion total outstanding US Treasury debt—the first such occurrence since the 1980s. The report indicated that this "first near-balance on both sides of the scale" might signal a loosening in the global monetary credit system centered around the US dollar and Treasuries, suggesting the gold market is entering an "uncharted territory" not experienced for decades, where future price movements will be accompanied by fierce battles and high volatility. Regarding the future trend, Wang Hongying views the current decline as a technical and structural correction following the preceding rally, with bulls remaining optimistic about future price appreciation. He predicts that gold will subsequently consolidate within a bottom range of $4,000–$4,200 per ounce, while silver will trade within a support range of $50–$70 per ounce. Wu Zewei also judges that precious metals will exhibit a pattern of "high-volatility consolidation, falling first then rising." In the short term, he believes a significant price retreat is highly probable due to profit-taking and a reassessment of monetary easing expectations triggered by the hawkish Fed Chair nomination. However, the cornerstones for medium-to-long-term appreciation—including persistent central bank gold demand, potential geopolitical risks, and long-term doubts about the US dollar credit system—have not vanished. "Once the market digests the swinging macro narratives and completes position adjustments, precious metals prices are expected to resume their upward trend supported by solid fundamentals."
Risks in "Bottom-Fishing" So, is now the time to position in gold? From a long-term strategic allocation perspective, the core drivers behind gold's ascent have not disappeared. The ongoing diversification of global central bank foreign exchange reserves, persistent geopolitical risks, elevated global debt levels fueling sustained safe-haven demand, and long-term structural doubts about US dollar confidence all provide a foundation for gold's value reassessment. However, from a short-to-medium-term trading viewpoint, immediately "bottom-fishing" carries significant risks. Regarding investment strategy for the current phase, Wang Hongying advises investors to strictly control position sizes and avoid chasing prices higher. Under a prudent investment approach, one might consider building positions cautiously during dips, primarily through holding physical precious metals or related ETFs. High caution is warranted for leveraged instruments like futures, options, and over-the-counter derivatives. Specifically, when gold retreats to the $4,200–$4,400 per ounce consolidation range and silver to the $40–$60 range, investors could consider allocating approximately 10% of their total investment capital to gold and silver ETF products, while implementing strict stop-loss and risk management measures, as a relatively safer strategy currently. Wu Zewei emphasizes that the primary task for investors now is risk avoidance; they should resolutely avoid blind "bottom-fishing" or using high leverage, acknowledging that assets like silver are far more volatile than gold. This adjustment period could be viewed as a window for long-term positioning, but requires a cautious, diversified strategy. He suggests prioritizing gold as a more stable core holding, employing a dollar-cost averaging approach to build positions gradually, thereby averaging costs and managing risk. Precious metals investments should strictly constitute one part of a broader asset allocation, with overall position size controlled, rather than being used for speculative directional bets.
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