The precious‑metals complex gave markets a jolt in January: an intra‑week rally that pushed spot gold toward an all‑time nominal peak of $5,598.75 per ounce was followed, within days, by a 9% single‑day plunge — the biggest one‑day fall in nearly 40 years — and an even larger shock in silver. By early February prices had recovered some ground, with spot London gold up roughly 6% from the trough and silver climbing about 10%, yet volatility remains elevated and investor nerves frayed.
Traders and analysts describe the recent episode as a violent pause rather than a definitive reversal. Market participants said frantic profit‑taking, emergency margin increases at the CME and the behavioural effects of a hawkish‑leaning U.S. Federal Reserve chair nomination combined to trigger a cascade of deleveraging. The subsequent bounce reflects a judged oversold condition more than a restoration of calm; implied volatility metrics sit at multi‑year highs.
Chinese brokerages and strategists offer competing readings of cause and consequence. Gan Jiayao, a non‑ferrous metals analyst at Founder Securities, pointed to concentrated profit taking, rapid margin hikes and sentiment hit by U.S. Fed politics as proximate causes of the sell‑off. Song Xuetao of Guojin Securities argued the collapse was chiefly mechanical — the removal of leveraged long exposure after an extraordinary run — while China Galaxy Securities’ chief strategist Yang Chao emphasised the nomination’s signalling effect that lifted the dollar and gilt markets, raising the opportunity cost of holding non‑yielding gold.
Despite the short‑term turbulence, many analysts stress that the structural drivers that powered the rally remain intact. Central‑bank buying, a longer‑running trend of dollar credit strain and an emerging reassessment of reserve strategy are cited as the market’s enduring supports. ‘‘There is no historical precedent for this exact episode; we are feeling our way across new terrain,’’ said Cheng Xiaoyong, an executive at Huawen Futures, noting that conventional valuation frameworks are struggling to accommodate current price levels.
Debate over valuation is stark. Pu Zulin, chief macro analyst at Zhengxin Futures, set out a three‑layer framework — monetary (long‑term fundamentals), financial (short‑term Fed and yield dynamics), and safe‑haven (event‑driven premiums) — and judged current prices to be significantly rich versus his modelled fair value of about $2,990/oz for 2026. He warned that the present price has largely “pre‑funded” a decade of gains, meaning investors who chase the market now risk high opportunity costs if prices stall.
Others argue that ‘‘overvaluation’’ can be persistent while geopolitical risk and reserve diversification remain elevated. Liu Gang of CICC described a bifurcated global picture: some official holders are unloading Treasuries and accumulating bullion, while others still buy U.S. debt. He said a sustained pivot away from the dollar would require a painful U.S. policy trade‑off — restoring fiscal discipline, restraining monetary expansion, renewing global cooperation or delivering sharply stronger economic growth to regain trust in U.S. assets.
Price desks and strategists are split on scenarios. UBS frames a bullish upside around $7,200/oz and a downside near $4,600/oz, arguing that an emphatic Fed hawkishness would pressure gold while a sudden spike in geopolitical hostilities could drive it toward the upside. Domestic Chinese houses put key support near $5,000/oz for gold and roughly $75–$80/oz for silver, counselling investors to avoid catching falling knives and to respect the elevated risk profile of the market.
The episode matters beyond traders’ margin calls. It illustrates how monetary policy signals, derivative market plumbing and sovereign reserve behaviour can jointly amplify commodity price moves. For investors and policy‑makers alike the question is no longer whether gold is a hedge, but under what circumstances it serves as one — and whether the metal’s newfound role in a partially de‑dollarising world is durable or prone to periodic convulsions.