The flash crash that wiped trillions off gold. Here’s why investors got burnt so badly

Thursday, 5 February 2026

Research found that advice from friends and colleagues is cited as an important source of information for 85% of investors under the age of 35, and 61% of these investors also said they were using social media as a source for investment information.

In a staggering 72 hours, gold and silver investors around the world saw the equivalent of the entire GDP of Japan and Germany wiped off their portfolios.

On a global level, gold and silver erased roughly US$7 trillion to US$10 trillion (NZ$11.5-16.5 trillion) in total market value.

This marked gold’s worst collapse since 1983 and the worst-ever drop for silver.

An investor who had NZ$100,000 in a gold exchange-traded fund on an investing platform would have seen their balance dive to $78,8000 in just a few days.

The remarkable thing about this is that gold is often regarded as a safe-haven investment, used to protect investors during times of market volatility.

However, it’s important to remember that “safe haven” doesn’t mean safe. Safe haven investments are given their name because investors will rush to these when stock markets get volatile or when geopolitical tensions rise. In times when markets struggle, the idea is that a safe haven should retain its value. It’s important to understand there’s no guarantee that this will happen. No matter what an investment is called, it always has the potential go up or down as the market conditions change.

The good news is that the prices of gold and silver have both stabilised after being rocked by those lows, but many investment portfolios will still bear the scars of this market turmoil.

It’s difficult to quantify the exact level of exposure New Zealanders have to the price of gold because it can come in a few different forms.

Investors could buy bullion directly from the mint, they could invest in gold exchange-traded funds on platforms like Sharesies, they could have some exposure via managed funds and KiwiSaver and they could also invest in jewellery.

The price of gold per ounce will influence all of these investments, meaning that any New Zealander holding a stake in any of these assets would have been hit by the crash in the gold price.

Every KiwiSaver portfolio manager will have a different view on the importance of gold, with the level of exposure varying from provider to provider.

ASB’s growth fund, for example, has a 2% allocation dedicated to the iShares Physical Gold exchange-traded fund, making it one of the top ten assets held in that fund.

The point here is that while gold might not be as ubiquitously powerful as it once was, it remains integrated into various parts of our lives.

What went wrong for gold?

There’s no single cause for the sudden collapse in gold and silver prices. Rather, it is the confluence of a number of factors that contributed to the volatility we’ve seen this month.

The key catalyst centres on the US President Donald Trump’s nomination of Kevin Warsh as the chair of the Federal Reserve.

Part of the reason gold has been rising so much is because of the fear that the new Federal Reserve Chair would decrease interest rates and further devalue the the US dollar.

The appointment of Warsh to the role has assuaged some of those concerns, according to Kōura Wealth founder Rupert Carlyon.

The appointment of Kevin Warsh as Federal Reserve chair had an immediate impact.

“Investors think he will be good at keeping inflation under control rather than being bullied by the White House to lower interest rates,” says Carlyon.

This means those who had been buying gold to protect themselves against the possibility of the US dollar tanking slowed their buying activity leading to a moderate price drop.

Once the price started to slip, you then had many investors who were looking to lock in their gains and they started selling aggressively.

There’s also a slightly technical element to this. A great deal of trading these days is automated. An investor who is concerned about being hit by losses can ask a broker to put a so-called stop-loss order on a certain investment. If the price drops to a certain level, then the investment is automatically sold, limiting the potential of significant losses in the event of a trade.

Stop-loss orders with gold would have accentuated the selling behaviour, leading to the price being pushed down even further.

Jeremy Sullivan, an investment adviser at Hamilton Hindin Greene, explains that when a market with so much interest starts to shift, it can start to “feed on itself for a period”. The trend of selling cascades as more and more investors look to look in the gains that they have made.

So is the gold party over?

Despite the recent collapse in the price of gold, interest in New Zealand remains high.

Millie Silvester, a Trade Me spokesperson, said ‘gold’ and ‘silver’ were the second and third fastest rising search terms in the past week with ‘silver bar’ and ‘silver bullion’ also appearing in the top ten.

Trade Me’s Millie Silvester notes that Interest in gold continues to grow despite the recent crash.

Searches for ‘silver’ were up 264% year-on-year while ‘gold’ was up 18%.

The question hanging over these investors is whether they’ve missed the boat and whether gold still offers the potential growth it has over the last year (it was the top-performing investment across a range of key categories in 2025).

Carlyon says that to understand the current state of the gold market, you need to look at recent history.

The rise in the price of gold since 2022 has been unprecedented historically. If anything, it was previously viewed as a steady-as-she-goes investment, rather than the growth asset it has suddenly become.

Kōura Wealth founder Rupert Carlyon says recent history has proven more volatile.

Carlyon says much of this comes down to the massive shifts we’ve seen in geopolitical frameworks.

“The last 30 years was the unusual period in my view in that we had very low interest rates, global stability, US hegemony and people trusted the US dollar so there was no alternative needed,” he says.

“I think we currently live in a very different era. We have more more volatility, high inflation and political instability, and these these are all triggers for people to look for a safe haven asset [like gold].”

So will prices keep rising?

“I am not so sure,” says Carlyon.

“Prices have already moved a long way, but it is hard to see demand from investors and or central banks slowing down. I do think what we are seeing is the new normal.”

Central banks around the world have been stockpiling gold, but recent price rises will make them feel nervous. If there is another sharp collapse in prices, this could hurt these countries economically.

“I think the purchases will keep going,” says Carlyon, with the proviso that most of these countries won’t want the market to move too far given that this will leave them vulnerable to price shocks.

What should gold investors do now?

Gold and silver prices are still up significantly from where they were 12 months ago, despite the recent crash.

But gold should be viewed with caution right now. In the current market it’s simply not behaving like the old-school safe haven that’s been in circulation for 5000 years. It’s, in fact, trading a bit more like something we might see recommended by an anonymous finance bro of an obscure Reddit forum.

You can see the volatility in how quickly JPMorgan has revised its forecast on where gold might go next.

The influential investment bank had previously forecast the potential of gold rising as high as US$8500 by the end of 2026, but has since revised that down to US$6000.

Jeremy Sullivan warns against following the mood of the crowd.

Meanwhile, Goldman Sachs has a high point of US$5400 while Citi Bank anticipates $5000.

With gold sitting at $4,930 at the time of writing, those estimates certainly don’t point to the level of growth we saw in 2025.

Sullivan tells me investors should use this moment to asses their level of investment, but their decisions shouldn’t be driven by the mood of the crowd.

“At a portfolio level, gold continues to play a complementary role rather than being a core return driver,” says Sullivan, which essentially means that gold shouldn’t be viewed as something that always offers strong growth opportunities.

“After strong price moves, it’s often a sensible time for investors to check whether their allocation is still within intended limits, rather than letting momentum dictate portfolio weights.”

As with any asset, investors should consider their level of exposure to gold and silver and consider whether they’re comfortable with the risk when viewed against what they’re trying to achieve in the long term.

Any moves in investment activity should be driven by strategy rather than the whims and fancies of the crowd.