After a stunning rally in recent times, gold suddenly hit the brakes, experiencing 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 gold's sharp decline was primarily the result of a combination of sentiment and fundamental factors. He suggested this round of "diving" is more akin to a rapid correction of previously overheated sentiment rather than a reversal of the medium-to-long-term trend. Most institutions also remain optimistic about gold's medium-to-long-term performance. However, given the recent extreme one-sided market movement, some institutions indicated that the subsequent corrective trend might extend further in the short term.
For retail investors and some merchants, the current moment is also one of anxiety. One merchant mentioned that with gold prices fluctuating violently, the industry is experiencing a rare difficulty in sourcing gold raw materials. While some investors see the price drop as an opportunity to "get on board," merchants are纠结ing over whether to sell their inventory due to the "fear of not being able to buy raw materials."
Several interviewed experts stated that with gold prices currently at high levels and increased volatility, risks have also risen, requiring investors to be more cautious.
Gold Experiences Correction Amid Overheated Market Spot gold first broke through $4,700 per ounce on January 20, and in just seven trading days, surged to break through $5,500 per ounce during the session on January 29. Following this rare sharp rise, spot gold began to adjust on the evening of January 29, giving back gains from several previous days.
According to Li Gang's analysis, the earlier surge in gold prices, driven by increased uncertainty around Fed policy and heavy market betting on future easing, pushed prices to historic highs in one go, leading to extremely crowded long positions. In such a situation, 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, is enough to trigger substantial profit-taking. As algorithmic 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 released on the afternoon of January 30, they mentioned that the core driver of gold's previous accelerated rise was a rapid升温 in risk-averse sentiment, while the root cause of this decline is an overheated market. As gold prices rose rapidly, the market slope became extremely steep, and some market indicators showed signs of overheating, creating motivation for speculative funds to take profits.
The violent fluctuations in gold have also left some retail investors anxious. Some investors who rushed in during the previous days'大涨 now find themselves "holding the bag" at high levels, while others who hadn't bought before are hesitating whether the current moment is a good time to "get on board."
On the afternoon of January 30, Liu Huawei, Director of Bank of China Gold Company Northern Branch, said that the situation on January 29, with prices rising during the day and falling in the evening, created a difficult scenario for merchants where both long and short positions suffered. Recently, it has been very difficult for the industry to purchase gold raw materials over the past three days, a situation not seen for many years. While some consumers see the drop as a buying opportunity, merchants are纠结ing over whether to sell amidst the fear of being unable to source gold原料.
Gold Investment Demand Hits 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.
According to a World Gold Council report, Chinese investors accumulated purchases of 432 tonnes of gold bars and coins in 2025, a 28% increase from 2024, setting a new annual record high. Globally, Chinese investors' purchasing power for bars and coins is also considerable. 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). The 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.
At a media exchange on January 29, Jia Shuchang, Head of Asia Pacific (ex-India) Research and Deputy Director of China Industry Development at the World Gold Council, mentioned to reporters 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 itself has a relatively low base for holdings, the current situation更能说明 an acceleration in the pace of inflows, indicating domestic investors' growing recognition and willingness to allocate to gold as a hedging tool.
Since the beginning of this year, investor enthusiasm for gold investment has continued unabated. 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 size increase exceeding 30%.
Institutions: Gold's Long-Term Bull Market Unchanged Looking ahead, institutions remain largely 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 all 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挑战 $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 have significantly influenced gold's trajectory, but now risk factors play a more prominent role. Currently, factors such as international instability, rising resource prices, and inflation expectations all provide support for gold prices.
Jia Shuchang added that while the gold futures market is very active, holdings have not changed significantly; investors are shifting more towards allocations in physical gold bars and gold ETFs, reflecting more of a strategic allocation currently rather than tactical short-term trading. Using the MSCI World Equity Index as a benchmark, gold's relative value has not significantly deviated. 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.
Increased Gold Price Volatility Demands Investor Caution Following the record-high gold investment demand in 2025, it is anticipated that gold will remain a favorite for many investors in 2026.
According to the World Gold Council's assessment, the strong momentum in Chinese market gold investment demand is likely to continue into the first quarter of 2026. On one hand, consumer self-reward purchases and gifting demand before the Spring Festival are expected to provide some support, partly driven by gold VAT reforms prompting buyers with investment motives for gold jewelry 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明显 increased volatility, investors need to be more cautious in their decision-making. The recent incident involving "Jie Wo Rui" in Shenzhen's Shuibei market further highlights that the hot gold investment market harbors不少 hidden risks, especially for ordinary investors.
China Merchants Bank Capital Market Research Institute cautioned that following this month's extreme one-sided market movement, the动能 for a market回调 is still accumulating, and the subsequent corrective trend might extend further. They advised tactical investors to remain vigilant and guard against market volatility risks.
Wang Lixin indicated 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波动 and funding pressure, consequently increasing high-level risks. Investors should maintain risk awareness, avoid盲目 "all in" strategies, and treat gold as a long-term asset allocation rather than a short-term投机 tool.
He also emphasized that investors participating in gold investment should conduct business through member institutions of the Shanghai Gold Exchange and licensed financial institutions, steering clear of non-standard transactions.
Li Gang also offered advice to investors. He believes 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 can also be used to hedge against the risk of short-term剧烈波动. For investors not yet in the market, he advises against盲目 chasing highs. A more稳健 strategy is to observe whether new support levels form after a gold price回调 before entering the market opportunistically. If investors are bullish on gold's medium-to-long-term performance, they can adopt a strategy of small,分批 investments to平滑 volatility by reducing risk at any single price point.
"Overall, gold remains supported by medium-to-long-term logic, but high-level fluctuations 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.
Comments