After the sharp decline in gold and silver, all eyes are on the opening of the Chinese market on Monday

After experiencing an epic "Black Friday," the global precious metals market is waiting for new directional signals, which are likely to come from the Chinese market during the Asian session on Monday.

Last Friday, silver prices plummeted 26% in less than 20 hours, marking the largest single-day drop in history; gold also fell 9%, its worst performance in over a decade. The market generally believes that the news of Trump's plan to nominate Kevin Warsh as the next Federal Reserve Chairman has driven up the dollar exchange rate, serving as the direct trigger for the collapse.

However, some traders have noted the important role that the Asian market has played in this round of market activity. Reports indicate that previously, the prices of gold, silver, and copper had shown a "parabolic" rise due to the influx of hot money from China.

Wall Street Insights previously mentioned that Chinese investors had almost "skyrocketed" copper prices, and Citigroup described the silver market as “gold on steroids”, with the Chinese market playing a dominant role in this.

Traders believe that the next key step for the metals market is to look at the opening performance of the Shanghai Gold Exchange and the Shanghai Futures Exchange, to assess whether China's demand for precious metals can recover after the severe sell-off.

Due to the daily fluctuation limits of 16%-19% on silver contracts at Chinese exchanges, the extreme drop in the external market last Friday suggests that Shanghai prices may experience a sharp "catch-up" adjustment after the opening.

Traders: From "Euphoria" to "Untradeable"

"In my career, this is definitely the wildest market I've ever seen," said Dominik Sperzel, trading director at Heraeus. “Gold is a symbol of stability, but this kind of volatility is definitely not a symbol of stability.”

Nicky Shiels, head of metals strategy at MKS PAMP, described last Friday's market as "frenzied and untradeable," noting that January 2026 will be recorded as "the most volatile month in precious metals history."

Alexander Campbell, former head of commodities at Bridgewater Associates, bluntly pointed out: “China has sold off, and now we are bearing the consequences.” Previously, due to expectations of diminished Federal Reserve independence and geopolitical tensions, a large number of Chinese retail investors and private equity funds flooded into the metals market, and Friday's profit-taking triggered a chain reaction.

Concerns Behind the Frenzy: Momentum Trading Detached from Fundamentals

In fact, prior to this crash, the market had already shown clear signs of overheating.

A previous article from Wall Street Insights mentioned that Citibank had proclaimed silver to be "gold on steroids," pointing out that this round of price increases was driven by capital allocation logic led by China, with India following suit, rather than traditional industrial demand Citigroup pointed out that the behavior patterns of Chinese retail investors are more akin to trend-following CTAs (Commodity Trading Advisors) rather than value-reversion investors.

However, this fund-driven rise has diverged from the fundamentals. Data shows that while global prices have surged, there has actually been a net outflow from global (excluding China) silver ETFs since December.

Jay Hatfield, Chief Investment Officer of Infrastructure Capital Advisors, stated: “We identified about three to four weeks ago that this has turned into a momentum trade rather than a fundamental trade. We are just going with the flow, waiting for this collapse to happen.”

Trina Chen, co-head of China equities at Goldman Sachs, also warned earlier that the astonishing rise in metal prices may have outpaced real demand, and as Chinese physical buyers retreat due to high prices, the market may experience a "technical adjustment."

Physical Market: Shui Bei Still Has a Premium, Retail Investors Are Watching

Despite the bloodbath in the futures market, the performance of the Shenzhen Shui Bei market, as a barometer for physical precious metal trading in China, remains relatively calm.

According to local traders, the tight supply of silver in Shui Bei eased over the weekend, with more selling than buying. However, it is worth noting that there has been no panic selling, and the price of silver in Shui Bei still maintains a premium over exchange contracts.

Liu Shunmin, risk manager at Shenzhen Guoxing Precious Metals, stated: “Gold has performed relatively strongly, and I have seen many bargain hunters buying jewelry and gold bars in the past two days before the Spring Festival. As for silver, the wait-and-see sentiment is stronger.”

This indicates that although speculative funds are retreating, traditional physical consumption demand during the Spring Festival may provide some bottom support for the market.

Major Chinese Banks Continue to Cool Down

Amidst the market's extreme volatility, Chinese financial institutions have strengthened risk prevention measures.

China Construction Bank announced an increase in the minimum deposit amount for its gold accumulation business starting Monday; Industrial and Commercial Bank of China stated it will implement quota controls on related businesses during the holiday period. These measures aim to guide investors to participate rationally and prevent excessive speculation.

The key moving forward is whether the traditional physical buying demand before the holiday can offset the impact of the withdrawal of speculative funds.

The market is confirming whether this "once-in-a-lifetime" situation will extinguish or regroup after an adjustment