Is Gold Still a Safe Haven? US Flags China’s Role in Price Swings, Analysts Warn of Speculative Risks
Gold has long been considered a reliable safe-haven asset, especially during periods of economic uncertainty. However, recent sharp rallies followed by steep declines have raised fresh questions about whether the precious metal still deserves that reputation. A surge to record highs late last month and a sudden correction soon after have prompted global policymakers and analysts to reassess what is driving gold’s volatility.
On January 29, gold prices reportedly touched a record $5,594 per ounce before plunging nearly 10% the very next day. The dramatic movement triggered debate among financial experts and officials about whether speculative forces—rather than traditional safe-haven demand—are now dominating the market.
US Treasury Raises Concerns Over Market Turbulence
According to Scott Bessent, the price swings reflect instability linked to Chinese markets. Speaking on Fox News program Sunday Morning Futures, he described recent fluctuations as “disorderly” and suggested they resembled a classic speculative blow-off phase.
He noted that Chinese regulators have repeatedly tightened margin requirements for gold trading in response to extreme price movements. Such interventions, he implied, signal stress within trading activity and could indicate that leverage-driven speculation is influencing prices.
Analysts Point to China as Key Driver
Market strategists interviewed by CNBC echoed similar views, saying China has been a major force behind gold’s latest rally. Nicky Shiels, head of research and metals strategy at MKS PAMP, stated that Chinese buying—across exchange-traded funds, physical bullion, and futures contracts—has played a central role in pushing prices higher.
Data from Capital Economics shows Chinese gold ETF holdings have more than doubled since early 2025, while futures trading volumes have also surged. On the Shanghai Futures Exchange, activity has accelerated sharply, reflecting heightened investor participation.
World Gold Council analyst Ray Jia reported that average daily trading volume rose from about 457 tons in 2025 to roughly 540 tons so far this year—an unprecedented jump that underscores the scale of demand.
Strategic Motives Behind China’s Gold Buying
Experts say there may also be geopolitical and strategic motives. Shaun Rein, founder of China Market Research Group, suggested that China is accelerating gold purchases as part of a broader push toward “de-dollarization,” aimed at reducing exposure to US economic pressure.
Official US Treasury data indicates that China’s holdings of US Treasurys fell to about $682 billion in November 2025, down 11% year-on-year. Meanwhile, the People's Bank of China has expanded its gold reserves for 15 consecutive months, reaching roughly 2,300 tons by January. This shift suggests a strategic rebalancing of reserves toward precious metals.
Rising Leverage Raises Red Flags
Economist Hamid Hussain from Capital Economics warned that rapid growth in futures and ETF activity may be amplifying volatility. He pointed out that increasing leverage in China’s gold market is a potential risk factor, as leveraged positions can intensify price swings in both directions.
Such patterns differ from traditional safe-haven investing, which is usually characterized by steady, long-term accumulation rather than aggressive trading. Hussain cautioned that current dynamics could signal the formation of a speculative bubble.
Why Chinese Investors Are Turning to Gold
According to ANZ Research strategist Zhaopeng Xing, limited access to alternative financial assets and weakness in China’s property sector have pushed households toward gold. With bank deposit rates hovering near 1% and real estate prices under pressure, gold has emerged as a more attractive store of value.
Currently, gold represents about 1% of Chinese household assets, but analysts believe that share could rise to as much as 5% in the coming years if current trends persist.
So, Is Gold Still a Safe Asset?
Despite the recent turbulence, experts stress that gold’s long-term status as a hedge against inflation and economic instability has not disappeared. However, they caution that short-term price behavior is becoming increasingly influenced by speculative flows, leverage, and geopolitical strategies.
For investors, this means gold may no longer behave as predictably as it once did. While it can still serve as a defensive asset in diversified portfolios, sudden price swings highlight the importance of careful timing, risk management, and a long-term perspective.
Disclaimer: This article is for informational purposes only and does not constitute investment advice. Investors should consult certified financial professionals before making investment decisions.
