Capital Economics has signalled concern that the recent surge in gold demand from China displays traits more aligned with speculation than a flight to safety, a dynamic that the research house says could raise the likelihood of heightened market turbulence.
In a note this week, the firm’s analyst Hamad Hussain said the growing use of leverage and futures trading to obtain exposure to gold in China ‘‘suggests that the recent increase in Chinese gold demand is more consistent with a speculative bubble inflating.’’ Capital Economics added that this pattern "will probably contribute to higher volatility in the gold market."
The firm emphasised that China’s activity is not the only factor behind recent price moves. Capital Economics pointed to flows into western-based gold-backed ETFs and to rising U.S. margin requirements as meaningful influences from outside China. Nevertheless, the firm stated that private Chinese investor demand remains a "significant influence on prices."
The composition of demand in China has shifted as prices reached record levels. According to the note, jewellery consumption has declined while purchases of bars and coins grew sharply, with bar and coin demand up 35% year over year in 2025.
Additional market indicators cited by Capital Economics include a doubling of holdings in Chinese gold-backed ETFs since early 2025 and elevated speculative net-long positions. The firm also drew attention to a surge in gold warrants traded on the Shanghai Futures Exchange, interpreting that development as a sign that futures trading has become a larger component of China’s gold market.
Capital Economics concluded it is possible "there may also be a gold bubble inflating in China," and warned that the combination of increased leverage and speculative activity could produce "more episodes of extreme volatility like at the start of 2026."
The note frames these findings as risks to the wider gold market given the degree to which Chinese private buying and global ETF flows are now intertwined with futures and leveraged exposure. The firm did not specify timing beyond the reference to early 2025 and the start of 2026, but its assessment makes clear that it sees a material potential for further price instability driven by speculative positioning and structural changes in how gold is traded in China.
Clear summary
Capital Economics warns that increased leverage, futures activity and growing ETF holdings tied to Chinese private investor demand make recent gold buying in China look increasingly speculative, raising the risk of pronounced volatility in the gold market.