China's Speculative Trading Fuels Gold Market Volatility
By John Nada·Feb 13, 2026·4 min read
China's speculative trading is driving significant volatility in the gold market, raising concerns over a potential bubble and impacting global financial systems.
Gold prices have experienced considerable volatility, linked to speculative trading behaviors in China. Following a record high of $5,594 per ounce on January 29, prices plummeted nearly 10% the next day, marking one of the sharpest drops in decades. This instability has raised concerns among analysts and officials, including U.S. Treasury Secretary Scott Bessent, who described Chinese market activity as 'unruly'.
Broader economic factors like U.S. interest-rate expectations and geopolitical tensions continue to drive demand for gold. However, analysts contend that Chinese retail and institutional investors are significantly impacting this volatility. Bessent noted that the gold market has seen a classical speculative blowoff due to heightened trading activity in China, prompting regulatory bodies to increase margin requirements.
The surge in gold futures and exchange-traded funds (ETFs) reflects a growing interest in gold among Chinese investors. According to Nicky Shiels, head of research and metals strategy at MKS Pamp, Chinese market activity has become the 'dominant driver' of precious metal prices. Chinese gold-backed ETF holdings have reportedly more than doubled since the beginning of 2025, signaling a robust demand for gold-linked financial products.
Hamad Hussain, an economist at Capital Economics, highlighted that the increasing use of leverage in China's gold market could lead to significant price fluctuations. Activity on the Shanghai Futures Exchange has surged, with average trading volumes approaching 540 tons per day. Last year's trading volumes averaged 457 tons daily, indicating a growing appetite for gold investments, despite regulatory tightening.
This excessive trading activity is raising red flags among market observers. Hussain warned that the recent buying trends suggest a potential speculative bubble in the gold market, as the current approach contrasts with typical safe haven investment behavior. Investors are increasingly turning to gold amid concerns about the stability of other asset classes, particularly real estate and low deposit rates in China.
The rising interest in gold among Chinese citizens reflects broader economic anxieties. With gold currently accounting for about 1% of Chinese household assets, there's potential for this figure to rise to 5%, especially given recent trends in the real estate market and deposit rates hovering near historic lows. Zhaopeng Xing, senior China strategist at ANZ Research, noted that gold serves as a good alternative for investors looking for security in a turbulent economic landscape.
The Chinese government's strategic interests also play a role in the rising gold prices. As Shaun Rein from the China Market Research Group observed, the move towards de-dollarization is part of a broader strategy to mitigate economic coercion from the U.S. This shift is driving both retail investors and the government to seek higher returns and safe haven assets in gold.
Data from the U.S. Treasury Department shows that China's U.S. Treasury holdings have decreased to $682 billion as of November 2025, down 11% year-on-year. In contrast, the People's Bank of China has expanded its gold reserves for 15 consecutive months, reportedly increasing holdings to around 2,300 tons. This dual approach—decreasing reliance on U.S. Treasuries while increasing gold reserves—illustrates a strategic pivot in China's investment landscape.
As volatility in the gold market continues, the implications for global financial systems are considerable. The intertwining of speculative trading in China with broader economic conditions presents a risk for both domestic and international investors. The evolving dynamics of the gold market may signal shifts in investment strategies and regulatory approaches as authorities respond to the growing influence of speculative trading.
Understanding these trends is crucial for market participants as they navigate the complexities of gold investments amidst a backdrop of economic uncertainty. The current patterns indicate not just a momentary spike in interest but potentially a long-term reshaping of how gold is perceived and valued in global markets.