Gold prices experienced a sudden sharp decline overnight, with spot gold closing 2.95% lower on Monday morning, falling below the $4,500 per ounce mark to settle at $4,453.67 per ounce. In the domestic market on Monday, multiple major gold jewelry brands slashed their prices significantly — Lao Miao Gold dropped 39 yuan to 1,345 yuan per gram for pure gold ornaments, Lao Feng Xiang fell 36 yuan to 1,348 yuan per gram, and Chow Sang Sang saw a daily drop of 37 yuan to 1,344 yuan per gram.
The sell-off followed hawkish remarks from Federal Reserve Chair Kevin Warsh at the annual economic symposium in Jackson Hole, Wyoming on Sunday. Following his speech, U.S. Treasury yields climbed, and gold futures on the New York Mercantile Exchange tumbled over 3%, while silver prices shed more than 4%. Spot gold dropped 3.2%, breaking below the $4,500 threshold.
In his address, Warsh highlighted concerning price data, noting that multiple inflation indicators show the U.S. inflation rate remains above the Fed's 2% target. He emphasized that the central bank should now focus primarily on price stability. While acknowledging that inflation has retreated significantly from its peak of a few years ago, Warsh stated that progress over the past two years has been limited. Despite better-than-expected summer inflation data, this does not indicate an improvement in the underlying inflation trend.
Warsh also pointed out that among the 199 components of the Personal Consumption Expenditures Price Index over the past 12 months, 54% of goods and services saw price increases exceeding 3% — far higher than the average seen in recent decades. The recent broad uptick in commodity prices also warrants attention. Following his remarks, the 10-year U.S. Treasury yield rose to 4.728%, and data from the CME FedWatch Tool showed the probability of a September rate hike climbed to approximately 57%.
Analysts believe Warsh's comments reinforced market expectations of tighter monetary policy from the Federal Reserve, putting downward pressure on gold prices. This sharp drop came after a surge in gold recycling activity during the preceding days of rally, as investors moved to capitalize on gains.
"The number of people coming in to sell gold suddenly surged!" said Mr. Wang, owner of a gold recycling shop in Hangzhou's Gongshu District. This mini-wave was driven by investors executing precise strategies. "Many clients accumulated positions when gold prices fell back to around 800 yuan per gram previously. Now with a difference of nearly 150 yuan per gram, the profits are considerable. Some have chosen to act decisively, taking profits and locking in gains," Wang explained.
The recent surge also provided a lifeline for those trapped in high-priced positions. Wang noted that some customers had bought near 900 yuan per gram several months ago and had been stuck with losses for months. With this rally briefly pushing prices past 1,000 yuan per gram, many clients opted to sell out to break even. One customer cashed in over 50,000 yuan in a single transaction, embodying the "get back to even and run" mentality — securing gains and moving on.
In stark contrast to the volatile gold price movements, physical gold buying has remained subdued. "The recent 'roller coaster' swings in gold prices have scared off many potential buyers," lamented an employee at a jewelry store. "Some consumers are wary, worried about buying at a peak like last time, only to see prices correct right after they purchase."
The volatility was on full display during a field visit — within just one hour, the recycling quotes at a Century Gold store in the market were adjusted downward four times, falling from 999 yuan per gram to 992 yuan per gram, a cumulative drop of 7 yuan per gram.
Hangzhou investor Ms. Liu shared her experience: starting in March, she made seven separate purchases of investment gold bars, with entry prices ranging between 1,100 yuan and 1,140 yuan per gram. She later bought more at 972 yuan per gram to lower her average cost, but when prices continued falling to around 868 yuan per gram, a widespread bearish sentiment made her worried about further declines. She ultimately purchased only a few grams, missing out on this latest rebound.
Wang Hongying, president of the China (Hong Kong) Financial Derivatives Investment Research Institute, predicts that in the short-to-medium term, international gold prices will fluctuate broadly around a midpoint of $4,600 per ounce, with the upper bound of the range seen at $5,000 per ounce and key support at the lower end around $4,200 per ounce. He believes the current gold market is characterized by a confluence of bullish and bearish factors that counterbalance each other.
On the bearish side, a strengthening dollar and rising expectations of Fed rate hikes continue to suppress gold's upside potential. On the bullish side, the U.S. debt surpassing $40 trillion, combined with continued gold accumulation by central banks — led by the People's Bank of China — and steady expansion in gold ETF holdings, provide solid underlying support for prices.
Given the current oscillating market, Wang advises investors to avoid blindly chasing rallies or panic-selling during dips. Instead, he recommends range-based trading strategies: when gold falls to the key support level of $4,200 per ounce, it presents an opportunity to build medium-to-long-term long positions; when prices surge into the $4,900 to $5,000 per ounce high range, investors may consider technical short-selling at opportune moments.