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Market Analysis2026-02-08
Gold Surges Past $5,100 Per Ounce, Then Plunges 21%: What Happened
Gold prices recorded unprecedented volatility, surging past $5,100 per ounce before plunging 21%. Silver also fell 40%, rattling the broader precious metals market — yet the World Gold Council reports that inflows into gold ETFs have actually accelerated.
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Gold prices smashed through $5,100 per ounce at the end of January 2026, setting an all-time high, only to plummet 21% in a matter of days in early February — a stunning bout of volatility. Silver suffered an even steeper drop of 40%. Yet according to BullionVault, despite the sharp sell-off, inflows into gold ETFs actually increased, and prices have been rebounding quickly. This article examines the causes behind the dramatic swing and what it means for gold investment strategy.
The Forces Behind Gold's Historic Rally
A confluence of factors drove gold's surge to $5,100. The primary drivers were uncertainty surrounding the Trump administration's tariff policies, escalating geopolitical tensions, and rising central bank gold purchases worldwide. According to a World Gold Council report, central bank gold buying totaled 1,037 tonnes in 2025 — exceeding 1,000 tonnes for the third consecutive year. Demand for gold as an inflation hedge has grown steadily, and expectations of a weaker U.S. dollar provided additional upward momentum.
The Trigger and Mechanics Behind the 21% Crash
According to Reuters, the immediate trigger for the crash was large-scale profit-taking by global hedge funds combined with a cascade of margin calls. Leveraged long positions in the gold futures market had built up to record levels, and when several major funds began unwinding their positions, a chain reaction of selling ensued. The steepest declines occurred during Asian trading hours when liquidity was thin, and algorithmic trading is believed to have amplified the selloff.
The Paradox of Gold ETF Inflows
Even as prices cratered, inflows into gold ETFs accelerated. The GLD ETF saw $2.8 billion in net inflows during the week of the crash, while IAU attracted $1.2 billion. This suggests that institutional investors viewed the selloff as a buying opportunity. From an asset allocation perspective, the optimal gold weighting in a classic 60/40 portfolio is roughly 5–10%, and investors whose gold exposure had shrunk below target likely used the dip to rebalance back to their desired allocation.
What Silver's 40% Drop Tells Us
Silver suffered an even more extreme drop of 40% compared to gold's decline. Because silver has a higher share of industrial demand than gold, it is more sensitive to concerns about an economic slowdown. The silver market is also roughly one-tenth the size of gold's, meaning liquidity crunches tend to exaggerate price swings. According to DW, the gold-to-silver ratio — a measure of silver's value relative to gold — surpassed 100, prompting some analysts to argue that silver has entered a zone of significant relative undervaluation.
Gold Market Outlook and Investment Strategy
According to a Reuters analyst survey, experts are actually raising their gold price forecasts, citing persistent global uncertainty. The consensus view is that sustained central bank purchases, ongoing geopolitical risks, and widening fiscal deficits will continue to support gold prices over the medium to long term. Investors are advised to maintain positions in gold ETFs such as GLD or IAU as a portfolio ballast — but if a prior surge has pushed gold's weighting too high, using a portfolio rebalancing calculator to trim back to the target allocation is the prudent course of action.
Conclusion
The 21% crash in gold was jarring, but the majority of experts believe it has not broken the long-term uptrend. If anything, this episode of volatility serves as a reminder that disciplined rebalancing is just as important in precious metals investing as in any other asset class. Regularly reviewing gold's weighting within your broader portfolio using an asset allocation calculator — taking profits after spikes and adding on dips — will be a key determinant of long-term returns.
