Capital Economics says 'signs of a gold bubble' are developing in China

Investing.com -- Capital Economics warned in a note this week that China’s surging gold demand increasingly resembles speculative behaviour rather than a rush to safety, raising the risk of further market turbulence.

According to the firm’s analyst, Hamad Hussain, “the growing use of leverage and futures trading to gain exposure to gold in China suggests that the recent increase in Chinese gold demand is more consistent with a speculative bubble inflating.”

The firm believes that dynamic “will probably contribute to higher volatility in the gold market.”

Concerns about China’s influence on global price swings have intensified. Capital Economics noted that U.S. Treasury Secretary Scott Bessant recently described Chinese gold trading as “unruly” and likened the moves to a “classical, speculative blowoff.”

Still, the firm stressed that Western investors have also played a significant role, citing “flows into western-based gold-backed ETFs” and rising U.S. margin requirements.

Even so, Capital Economics stated that private Chinese investor demand remains a “significant influence on prices.”

Jewellery consumption has fallen as prices hit historic highs, while bar and coin demand rose 35% year over year in 2025.

Holdings in Chinese gold-backed ETFs are said to have doubled since early 2025, and speculative net-long positions “are at elevated levels.”

The firm also pointed to a surge in gold warrants on the Shanghai Futures Exchange, saying it indicates futures trading “has become a bigger part of China’s gold market.”

Capital Economics concluded that “there may also be a gold bubble inflating in China,” arguing that increased leverage and speculative activity could mean “more episodes of extreme volatility like at the start of 2026.”

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