A sudden, sharp sell‑off in international precious metals markets on 2–3 February produced cascades through Asian exchanges, exposing crowded positions, fragile market structure and gaps in valuation practices.
In mainland China the fall was dramatic: domestic futures opened sharply lower and, by close, 13 contracts across precious metals, base metals and energy — including silver, platinum, palladium, copper, aluminium, nickel and crude oil — had hit daily limit‑down bands. Market participants called it a “black Monday” for commodities as panic selling, programmatic strategies and concentrated leverage combined to overwhelm liquidity.
The rout did not stop at commodities. Indonesia’s Jakarta Composite Index tumbled 4.88% to 7,922 on 2 February, with 715 stocks declining and severe losses across basic materials (down over 11%), energy and consumer discretionary (each near 8%). The Indonesian Financial Services Authority moved quickly to replace several senior regulators and signalled urgent steps to shore up transparency and investor confidence.
South Korea’s KOSPI also suffered heavy losses on 2 February, falling about 5.26% at one point and prompting the exchange to activate an emergency temporary halt in programmatic trading. The volatility was amplified by recent stretched valuations: many Asian indices and commodities had enjoyed rapid rallies in January, leaving positions vulnerable to a sudden negative shock.
The sell‑off was compounded by a domestic valuation dispute that played out in public. Guotou Silver LOF, a China‑listed fund with large holdings of silver futures, adjusted its valuation methodology on 2 February to track international market prices at the Beijing 15:00 pricing reference; the change followed an intra‑day collapse that saw the fund’s price plunge by more than 31% before trading adjustments were made and it was suspended and later re‑listed with persistent limits.
Industry traders and analysts described the episode as a concurrence of excessive leverage, concentrated long positions and fragile market plumbing. Program trading, derivatives and cross‑margining arrangements magnified the moves: initial forced selling fed into algorithmic execution that worsened price declines, in turn triggering more margin calls.
The immediate market response included emergency action by Chinese exchanges and fund managers to adjust valuation rules and reopen trading in stages. Regulators and exchanges will face pressure to review circuit breakers, futures margining, valuation references for funds holding derivatives, and disclosure standards for leveraged positions.
Beyond the mechanics, the episode matters because it highlights structural vulnerabilities in regional markets during periods of stress. With policymakers in Beijing urging local governments to accelerate policy implementation and cultivate new growth drivers, episodic financial instability risks undermining sentiment, raising borrowing costs for corporates, and complicating efforts to support domestic demand. Short‑term volatility may abate, but the event is likely to prompt tighter oversight of leveraged commodity exposure and possible reforms in trading rules across Asia.