Gold eased in early Asian trade on Monday, with spot prices at $5,012.44 an ounce as of 9:00 a.m. in Singapore, down 0.6% after last week’s strong advance. Silver slipped 1% to $76.66 an ounce, while platinum and palladium also traded slightly lower. The Bloomberg Dollar Spot Index edged up 0.1%, exerting mild pressure on non-yielding metals.

On the surface, the pullback appears orderly – traders locking in gains after bullion climbed back above the psychologically significant $5,000 level. But beneath the modest dip lies a far bigger story. The yellow metal is seeing one of the most volatile and structurally complex rallies in decades, marked by record highs, sharp reversals, speculative surges in China, aggressive central bank accumulation, and a growing debate over whether gold is behaving like a safe haven – or a momentum trade.

The real question is not why gold slipped today. It is whether the rally that pushed it through $5,000 represents durable repricing – or an overheated phase of financial enthusiasm.

The Immediate Catalyst

Last week’s move was triggered by softer-than-feared US inflation data. The US consumer price index rose 0.2% in January, tempering concerns of a sharper jump and strengthening the case for potential rate cuts from the Federal Reserve later this year.

Lower real yields tend to benefit gold because the metal offers no income. When borrowing costs fall, the opportunity cost of holding bullion declines, making it relatively more attractive compared with bonds or cash.

The rally that followed lifted gold back above $5,000 after an extraordinary sequence of moves: a record surge to $5,595 in late January, followed by a near 10% two-day plunge that dragged prices below $4,500, and then a partial recovery in choppy trading.

This is not normal price action for an asset traditionally viewed as a store of stability. And that is where the deeper forces begin to matter.

The China Factor

A significant part of gold’s recent volatility appears linked to activity in China – both retail and institutional.

Volumes on the Shanghai Futures Exchange have surged sharply this year, with average daily turnover approaching 540 tons, according to market participants. Chinese gold-backed ETF holdings have more than doubled since the start of 2025. Futures positioning has expanded rapidly, and regulators have repeatedly raised margin requirements in response to elevated volatility.

US Treasury Secretary Scott Bessent described the situation bluntly on Fox News, calling recent moves “unruly” and likening the price action to a speculative blowoff.

While such characterizations may sound dramatic, there is clear evidence that leverage has increased in segments of China’s gold market. The growing accessibility of gold-linked financial products – from ETFs to futures contracts – has amplified participation. Rising prices have attracted further inflows, reinforcing the cycle.

Yet reducing China’s role to speculation alone would be simplistic.

Structural anxieties are driving behavior. With real estate prices under pressure and deposit rates hovering near historic lows around 1%, gold has emerged as an alternative store of value. Currently, gold accounts for roughly 1% of Chinese household assets – a relatively small allocation that some strategists expect could rise toward 5% over time.

There is also a strategic dimension. China’s holdings of US Treasuries have declined to around $682 billion as of November 2025, down 11% year-on-year. Meanwhile, the People’s Bank of China has expanded its gold reserves for 15 consecutive months through January, taking official holdings to roughly 2,300 tons.

In a more geopolitically fragmented world, gold offers neutrality. It carries no counterparty risk, cannot be sanctioned in the same way sovereign bonds can, and sits outside the traditional dollar-dominated reserve system.

The combination of household demand, speculative participation, and official reserve diversification has created a powerful bid – but also a more unstable trading environment.

Why Many Banks Remain Bullish

Despite the volatility, major financial institutions continue to forecast higher prices.

ANZ Group has projected gold reaching $5,800 an ounce in the second quarter. Analysts at Goldman Sachs maintain a bullish outlook, expecting prices around $5,400 by the end of 2026, while rejecting the notion of a broad commodities supercycle.

Their reasoning rests on structural supply constraints and central bank demand.

Unlike industrial metals such as copper, gold production does not scale easily in response to higher prices. Mine supply tends to grow slowly and is relatively inelastic. According to data from the World Gold Council, total gold demand in 2025 exceeded 5,000 tons for the first time — up 1% by volume — while annual supply also grew by just 1%.

What stands out is the lack of meaningful supply response to a roughly 67% rise in the US dollar gold price.

Central banks have been accumulating gold steadily since Russia’s invasion of Ukraine in 2022, reflecting concerns over sanctions risk and reserve diversification. That structural buying has provided a consistent underpinning to prices.

Layered on top of that is what some analysts call the “debasement trade” — investor anxiety about government finances in Western economies. Expanding fiscal deficits and rising debt burdens have encouraged investors to hedge against long-term currency erosion.

Not A Commodity Supercycle

Goldman Sachs, however, cautions against conflating gold’s rally with a broader commodity boom.

Unlike energy or industrial metals, where higher prices incentivize new production, gold’s supply growth is constrained by geology and long project timelines. This makes the metal uniquely sensitive to demand shifts.

Silver, by contrast, has exhibited even sharper volatility – partly due to a liquidity squeeze in London vaults, where a significant share of available supply is already spoken for. As traders moved metal to the US ahead of potential tariffs, available inventory shrank, exacerbating price swings.

But none of this necessarily signals a multi-decade commodity supercycle. Instead, gold’s behavior appears idiosyncratic – shaped by reserve flows, investor positioning, and geopolitical hedging rather than synchronized industrial demand.

A Break From History

For decades, gold’s relationship with real interest rates has been relatively stable: prices tend to rise when real yields fall.

Recently, however, that relationship appears to have weakened.

Gold has surged even as macroeconomic conditions have remained firm rather than crisis-driven. Historically, since 1800, gold has outperformed equities and bonds in only three decades – the 1930s, the 1970s, and the 2000s.

As the best-performing major asset class in both 2024 and 2025, gold’s dominance has been unusual. A third consecutive year of outperformance would be historically rare.

The parabolic nature of recent gains – followed by abrupt reversals – suggests momentum has become a powerful force.

Fundamentals Versus Momentum

The “science” behind the rally is visible:

• Central banks are accumulating.
• Supply is constrained.
• Fiscal concerns are rising.
• Geopolitical tensions persist.

But the “art” of markets – positioning, leverage, options flows – has amplified the move.

Investors have increasingly purchased gold call options, and dealers hedging those exposures often buy the underlying metal, reinforcing price gains. When sentiment turns, the same mechanics can accelerate declines.

In China, margin tightening by exchanges has already signaled regulatory concern. If leverage unwinds quickly, volatility could intensify.

This interplay between structural demand and tactical flows is what makes the current rally difficult to categorize neatly as either safe-haven buying or speculative excess – it is both.

The Last Bit, What Could End The Rally?

Gold does not typically collapse without a catalyst.

A sustained rise in real yields could pressure prices. A meaningful slowdown in central bank buying would remove a structural pillar. A decisive improvement in geopolitical stability could reduce hedging demand. Or speculative positioning could simply exhaust itself if price gains begin to stall.

For now, none of these forces appear dominant.

Gold’s resilience above $5,000 suggests that while volatility is elevated, the broader bid remains intact. The current dip looks more like consolidation than capitulation.

Yet history warns against assuming parabolic moves extend indefinitely.

Gold will likely continue to glisten as long as structural anxieties and reserve diversification persist. But if momentum begins to fade and leverage unwinds, the transition from insurance to excess could happen quickly.

For investors, the line between safe haven and speculative trade has rarely been thinner.