Chinese speculators set the stage for gold and silver crash
(Bloomberg) — Until last year, there was only a brief period in the history of the silver market when prices traded above $40 an ounce. On Friday, exhausted traders watched in shock as precious metals prices fell so sharply in less than 20 hours.
Metals traders around the world have been spending their nights glued to their screens for weeks now, as a wave of hot money from Chinese speculators sends prices soaring, and the prices of everything from gold to copper to tin appear to be breaking free from the gravity of supply and demand fundamentals.
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And in just a few hours, this bull market turned into one of the most dramatic collapses ever seen in commodity markets. Silver’s 26% drop on Friday was the biggest on record, while gold fell 9% in its worst day in more than a decade. Copper traders were already reeling from the sudden jump to more than $14,500 a tonne, but it dissipated just as quickly.
“This is definitely the wildest thing I’ve seen in my career,” said Dominique Spazel, head of trading at Heraeus Precious Metals, a major metal smelter. “Gold, it’s a symbol of stability, but that kind of movement is not a symbol of stability.”
Friday’s selloff was triggered by news that U.S. President Donald Trump plans to nominate Kevin Warsh to the Fed board, sending the dollar higher, but many warned that metals markets were overextended and due for a correction after weeks of relentless rally. Still, the speed and scale of the decline was breathtaking, especially in a market as large and liquid as gold.
Metals traders in Europe and the United States are working around the clock and even taking long-haul flights to trade frantically, not wanting to miss out on Asia’s most volatile trading day. At the world’s largest coin conference in Germany last week, executives stood staring at their phones and silently watched the crisis unfold.
Photographer: Tierney L. Cross/Bloomberg
Nikki Shields, head of metals strategy at MKS PAMP SA, said Friday’s market was described as “parabolic,” “frenetic” and “untradable.” January 2026 will be remembered as “the most volatile month in precious metals history,” she said.
Gold’s Climb
Gold’s rally has been going on in recent years as central banks have expanded their holdings as a substitute for the dollar, and accelerated last year as Western investors took to so-called downgrade trades.
But the rally has been even more ferocious in recent weeks, with prices for metals from copper to silver hitting new record highs, driven by a wave of buying by Chinese speculators, from retail investors to big commodity equity funds. As prices skyrocketed, trend-following commodity trading advisors entered the market one after another, further adding to the bubbles in the market rally.
“We realized about three or four weeks ago that we were now trading momentum rather than fundamentals,” said Jay Hatfield, chief investment officer at hedge fund Infrastructure Capital Advisors. “We just kind of went along with it and waited for something like this to happen.”
The metal’s rally symbolized some investors’ growing distrust of the U.S. dollar, as concerns over the independence of the Federal Reserve and geopolitical conflicts from Venezuela to Iran make headlines. A frenzy for gold and silver has attracted shoppers from China to Germany, as the metal’s upward momentum attracts more and more buyers. Scenes reminiscent of 1979-1980 were the only time in modern history when the market witnessed such dramatic price fluctuations.
Photographer: Andreas Gebert/Bloomberg
“Certain bar sizes have been sold out for weeks, but people are still buying them,” said Heraeus’ Spazel, who said the company is operating at maximum capacity to meet demand. “People line up for hours in front of these stores to buy products.”
The price movements were most pronounced in silver, a relatively small market with annual supply of just $98 billion at current prices compared to $787 billion for gold.
On Friday, iShares Silver Trust, the largest silver-backed exchange-traded fund known by the ticker SLV, posted sales of more than $40 billion. As a result, the company has become one of the most traded securities on the planet, even though just a few months ago it rarely traded more than $2 billion.
Options trading, which has become increasingly popular among individual traders in recent years, was similarly enthusiastic.
Seen by some investors as a cheap way to bet on a market rally, posts on the Reddit group that has supported previous silver retail price increases showed that betting on silver’s spike could yield returns of more than 1,000%. The largest gold and silver ETFs have each seen record call option open interest and trading volume in recent weeks, with SLV’s call option trading volume exceeding that of the major ETFs tracking the tech-heavy Nasdaq 100 index.
When there are a large number of outstanding calls, conditions are ripe for a squeeze to occur as dealers rush to hedge their positions by buying the underlying asset when the price starts to rise, contributing to further price movements.
“As we get tighter, they mechanically have to keep buying more,” said Alexander Campbell, former head of products at Bridgewater Associates. “And that would explain why we go up so fast and come down so fast.”
On Tuesday night, President Trump’s comments that the dollar was “doing great” under pressure sparked a final frenzy in metal buying that sent prices to new records. By Thursday, gold had reached $5,595 an ounce, silver was above $121 and copper was $14,527.50.
The first signs of a reversal appeared late Thursday, when the dollar strengthened as U.S. markets opened and gold suddenly tumbled, dropping more than $200 an ounce in about 10 minutes at one point.
Prices briefly stabilized, but then Bloomberg and other news outlets reported that President Trump planned to nominate Warsh to be the next Fed chairman. Previously, morning trading in Asia had steadily pushed prices higher, with European traders watching in misty-eyed amazement, but this time Chinese investors took profits. The seeds for Friday’s dramatic selloff were sown.
“China sold and now we’re suffering the consequences,” Campbell said.
As the new week begins, all eyes are once again on China. Prices extended their decline on Monday morning, with copper falling by as much as 5.7%, gold by 10% and silver by 16% to new lows.
The key question is when will buyers return? A pullback ahead of Lunar New Year, the traditional buying season, could serve as an entry point as retail investors who missed the rally wait to jump in. Traders said the tightness on silver had eased somewhat in Shuibei, a major bullion trading hub, with more selling than buying over the weekend. However, there are no signs of panic selling, and water shell silver prices are still trading at a contract premium.
Amid simmering consumer interest, several Chinese banks on Friday announced new measures to curb risks associated with retail savings products, following a spate of similar moves over the past year.
China Construction Bank said it would raise the minimum deposit amount from Monday, urging investors to be more risk-aware, while Industrial and Commercial Bank of China announced it would implement quota regulations for Ruyijin savings services during the holiday. The exchange has also taken several steps that could dampen the broader rally in global metals markets.
“Gold is relatively strong. There seems to be a lot of bullish buying in the past two days to buy jewelry and bars ahead of the Lunar New Year,” said Liu Xunming, head of risk at trader Shenzhen Guoxing Precious Metals Co., Ltd. “On the other hand, silver is more likely to be on the sidelines.”
