Gold Price Volatility Intensifies

Gold prices are experiencing significant volatility. A sharp rise in the previous week triggered profit-taking. During the sharp decline from January 29th to 30th, the total market capitalization of gold evaporated by approximately $4.3 trillion in just one day. While gold has been highly sought after as a relatively safe-haven asset over the past year, its speculative nature is becoming increasingly prominent.

As one of the international benchmarks for gold prices, the London spot price reached a high of $5594.82 per ounce (approximately 31.1 grams) on January 29th. It plummeted the following day, closing at $4864.35, a drop of $530 (9.8%) from the previous day.

This marked a record single-day drop and the largest decline since 1980. The price continued to fall in Asian trading on February 2nd, after the weekend, reaching around $4400, a one-month low.

On the morning of January 30th, a 45-year-old male business owner invested 1 million yen in each of four exchange-traded funds (ETFs) investing in gold, silver, platinum, and palladium. This decision stemmed from a friend’s recommendation, who had already profited handsomely from the continuously rising market. However, shortly after his purchases, precious metal prices collectively plummeted. By the evening of February 2nd, his paper losses exceeded 800,000 yen.

As of the end of 2025, the total amount of gold mined by humans is estimated at 220,000 tons. As of January 29th, its value was close to $40 trillion, but nearly $4 trillion evaporated in a single day.

Unlike currencies that humans can issue, gold, due to its limited reserves, is easier to maintain its value. It has long been considered a “safe asset” for preserving asset value during crises such as wars or economic shocks.

ETFs backed by physical gold also emerged after the 2000s, making gold a financial product that anyone can buy. Market analyst Itsuo Toyoshima stated, “Due to ease of trading, gold is increasingly being widely purchased by investors seeking returns, such as hedge funds.”

Instability in the international situation and de-dollarization have boosted individual gold investment, with central banks also continuously buying it as an alternative asset. During the recent year-long price surge, gold prices have been frequently reported in the media, further solidifying its familiarity as an asset.

Statistics from the World Gold Council (WGC), an international research organization, show that investment demand in 2025 is expected to increase by 80% compared to the previous year, accounting for 60% of that year’s mining output. In particular, ETFs have seen a sharp increase from a net outflow of 2.9 tons in 2025 to a net inflow of 801.2 tons.

This robust demand has put upward pressure on gold prices. As speculative funds targeting interest rate differentials flow into the market, they have driven gold prices to surge, pushing it beyond the realm of a stable, safe-haven asset.

The catalyst for the sharp drop was the nomination of former Federal Reserve Governor Warsh as the next chairman on January 30th. Warsh is considered a “hawk” favoring a tighter monetary policy. Investors waiting for profit-taking opportunities interpreted this as bearish and unanimously sold off gold.

Leveraged margin trading, which inflated prices several times over, also contributed to the sell-off, further accelerating the decline in gold prices.

This trend continued in Asian markets after the weekend. Recently, during Asian trading hours, a surge of buying in the Shanghai market pushed prices up. However, prices turned downward on February 2nd.

It is difficult to predict whether gold prices will continue to fall after such significant volatility. The environment that has driven up gold prices, including geopolitical risks and political pressure from the Trump administration on the Federal Reserve, has not changed significantly.

Koichiro Kamei, a representative of the Market Strategy Institute in Japan, stated, “Due to the large fluctuations, the adjustment period may be prolonged,” but he also noted, “In the long term, the upward trend remains unchanged.”

At the Tanaka Precious Metals Ginza flagship store, which sells gold bars, customer traffic increased on February 2nd due to the price crash. Assistant store manager Daisuke Yamaguchi stated, “About 80% of customers came to buy gold. The feeling is that the average purchase amount per transaction is larger than before.”

In a report dated February 1st, JPMorgan Chase raised its year-end 2026 gold price forecast from $5,400 to $6,300. The report believes the trend of diversifying funds into physical assets like gold will continue, and demand from central banks and other investors will further drive up gold prices.

It is worth noting the comments made by Warsh, nominated as the next Federal Reserve Chairman. Toyoshima Itsuki believes that “if (Wash) specifically mentions monetary tightening, it will put significant pressure on gold prices.”