Gold’s dramatic surge to a record $5,594 per ounce in late January — followed by a nearly 10% single-day plunge — has reignited debate about what is truly driving the precious metals market. While U.S. interest-rate expectations and geopolitical tensions remain central themes, a growing number of analysts are pointing to speculative activity in China as a key amplifier of volatility.

U.S. Treasury Secretary Scott Bessent characterized recent moves as “unruly,” noting that Chinese regulators have had to tighten margin requirements amid heightened trading. The sharp reversal in prices has raised questions about whether bullion’s traditional safe-haven role is being overshadowed by speculative positioning.

Surging Futures, ETFs and Leverage

Chinese participation in gold-linked financial products has accelerated markedly. Holdings in Chinese gold-backed exchange-traded funds have more than doubled since the start of 2025, according to Capital Economics, while trading volumes on the Shanghai Futures Exchange have climbed toward an average of 540 tons per day year-to-date — well above prior records.

This wave of activity reflects broader financial evolution in China’s markets. Access to derivatives and leveraged products has expanded, allowing both retail and institutional investors to amplify exposure. Yet leverage cuts both ways. As margin requirements are raised, forced liquidations can trigger outsized price swings, contributing to the kind of air-pocket declines seen in late January.

For global investors — including those in Israel and the United States with gold exposure through ETFs or mining equities — the increased role of leveraged Chinese flows introduces an additional layer of risk. Volatility may no longer be driven solely by macroeconomic fundamentals but also by positioning dynamics in Asia.

Structural Anxiety Meets Tactical Speculation

The demand surge is not purely speculative. China’s domestic economic landscape offers limited high-yield alternatives. Property markets remain under pressure, and deposit rates hover near 1%, pushing households toward gold as both insurance and opportunity. Currently, gold accounts for roughly 1% of Chinese household assets, but some strategists believe that allocation could rise significantly if confidence in traditional assets continues to erode.

At the policy level, Beijing’s steady reduction of U.S. Treasury holdings — down to $682 billion as of late 2025 — alongside 15 consecutive months of gold reserve accumulation suggests a strategic pivot. The People’s Bank of China’s reported holdings of roughly 2,300 tons underscore a broader de-dollarization narrative.

Still, analysts caution that rising leverage and momentum-driven inflows blur the line between structural diversification and speculative excess. When safe-haven assets attract rapid capital chasing short-term gains, volatility tends to intensify rather than diminish.

Bubble Risk or Market Evolution?

The core question is whether gold’s recent turbulence represents a speculative bubble inflating within China or a structural repricing in a world of geopolitical fragmentation and monetary uncertainty.

If Chinese regulators continue tightening trading conditions, volatility could moderate. Conversely, persistent capital inflows and further margin expansion may sustain sharp swings. Meanwhile, Federal Reserve policy and global geopolitical developments remain powerful macro anchors.

For investors, the lesson is clear: gold’s role as a hedge has not disappeared, but its path may be less predictable as speculative flows grow. Monitoring Chinese ETF data, futures positioning and central bank reserve trends will be critical in assessing whether bullion stabilizes above $5,000 — or faces another abrupt correction.