How do AI bottom-fishing investors fall into the trap of buying more as prices fall?

Just in the past week, international gold prices experienced a sharp plunge.

As of 3:00 p.m. Beijing time on March 21, the spot price of London gold not only broke below the key level of $4,500 per ounce, but also posted a weekly decline of 10.49%, marking the largest weekly drop since March 1983.

Currently, conflicts in the Middle East are still escalating. Why has gold’s safe-haven effect failed? Wang Jun, Chief Expert at GreenDaHua Futures, told First Financial that in the short term, macro factors such as “rising global inflation—high interest rates—strengthening dollar” have overshadowed traditional safe-haven logic. Coupled with the resonance of capital behavior and technical adjustments, this has led to gold falling instead of rising.

Market traders also told First Financial that during the rapid price decline, trading volume significantly increased, indicating fierce battles between bulls and bears. Some funds that previously entered based on safe-haven logic are showing signs of stop-loss exits.

Gold prices drop over 10% in a week, triggering a global sell-off

According to Wind data, after reaching a high of around $5,040 per ounce on March 14, London spot gold prices turned downward, closing lower for eight consecutive trading days. The main COMEX gold futures contract closed at $4,592.1 per ounce, down 9.62% for the week.

Silver prices fell even more sharply, dropping over 15% during the same period. Palladium and platinum also declined in tandem with international gold prices.

Beyond precious metals, global assets have also been sold off. U.S. stocks have fallen for four consecutive weeks, with the S&P experiencing its longest weekly losing streak since March 2025; European bond markets also declined sharply, with the UK 10-year government bond yield rising 17.7 basis points this week, hitting 5% for the first time since 2008; Germany’s 10-year government bond yield reached its highest since 2011, and the two-year German bond yield surged 23 basis points this week.

On the news front, Xinhua reported that the U.S. is formulating strategic plans to seize Iran’s “nuclear reserves.” Additionally, Iran’s military threatened to launch destructive strikes against “evil” U.S. and Israeli officials, commanders, and soldiers, stating they would no longer be safe even while on vacation abroad.

Jerry Chen, Senior Analyst at Gains Group, believes that since the outbreak of Middle East geopolitical conflicts, the market logic has become clearer: safe-haven funds are flowing into crude oil and the dollar. Inflation risks are forcing central banks worldwide to end easing policies or even shift to rate hikes, putting pressure on gold and causing global stock sell-offs.

Furthermore, macroeconomic data released this week further dampened market expectations of rate cuts. The U.S. Producer Price Index (PPI) for February rose 3.4% year-over-year (vs. 3.0% expected), the largest increase since July 2025; core PCE (Personal Consumption Expenditures Price Index) expectations were raised to 2.7%.

Meanwhile, the Federal Reserve signaled a hawkish stance, maintaining the federal funds rate target range at 3.50%–3.75%, marking its second pause on rate cuts this year. The Fed also raised its forecasts for PCE inflation, core PCE inflation, and GDP growth for the next two years.

Additionally, both interest rates and the dollar strengthened, directly suppressing gold prices. The latest 10-year U.S. Treasury yield rose above 4.25%, and the dollar index remained above 100, further weighing on dollar-denominated gold prices.

“Bottom-fishing army” caught off guard, market sentiment hits freezing point

The rapid decline in gold prices has also caused many ordinary investors to suffer unrealized losses due to misjudging the trend. Xiao Wen, an investor from Shanghai, is one such example.

On the morning of March 19, Xiao Wen saw that overnight international gold prices had fallen to around $4,800, and the quoted price for stored gold also dropped. She decided to buy. Around 9 a.m., she purchased 12 grams of bank stored gold at 1,082.6 yuan per gram, plus 6 yuan in fees, with a holding cost of about 1,089 yuan per gram. “Recently, stored gold prices stayed above 1,100 yuan. It had fallen so much, I thought it would rebound,” she said.

In the afternoon around 2 p.m., international gold prices suddenly plunged. The stored gold quote on the screen fluctuated rapidly downward. “I watched my phone all afternoon, feeling desperate as the price kept dropping,” she said. By around 5 p.m., when she finished work, the price had fallen to about 1,050 yuan per gram, with an unrealized loss of about 500 yuan, and the decline was still ongoing.

In the early hours of March 21, Xiao Wen continued to monitor during U.S. stock trading hours. She placed a limit order at 1,010 yuan but the price didn’t reach it. As she was about to sleep and worried about missing a chance to add to her position, she hesitated and bought again at 1,026 yuan. The next morning, she woke up to find the gold price had fallen to as low as 1,007 yuan.

Similarly, Xiao Lin from Hangzhou was caught in this decline. When gold prices started dropping sharply on March 18, Xiao Lin increased her holdings of gold ETFs. Over the next two trading days, the net value of her gold ETF continued to decline along with the gold price, and she added two more positions to try to average down.

“Every time it drops, I think it’s the bottom, but it turns out I’m buying in the middle of the climb,” Xiao Lin said. Currently, her three positions are over 10% in unrealized loss, and her funds are nearly exhausted, leaving her only to “lie flat.” According to Wind, as of March 21, seven gold ETFs linked to the SGE Gold 9999 index shrank by over 24 billion yuan this week.

Investors like Xiao Wen and Xiao Lin, who keep buying as prices fall, are not few. Industry insiders warn that this “bottom-fishing” mentality can cause people to overlook the trend’s persistence. In a sharp decline, blindly entering the market often involves significant risks.

Can prices bounce back?

The current market’s main concern is whether gold prices can recover.

Huaxia Fund analysts note that, as a safe-haven asset, gold has continued to decline since March because its safe-haven role is based on the collapse of dollar credit and runaway inflation, not on liquidity shortages or deflation risks. The market is now worried about marginal liquidity deterioration, while the impact of geopolitical conflicts has noticeably weakened.

They believe that the tight monetary shocks to gold are more temporary. Long-term factors such as geopolitical conflicts and central bank gold-buying logic remain intact or have not reversed. Gold’s medium- to long-term upward momentum continues, but short-term risks need to be released first.

Despite market panic, the firm still sees short-term pain as a necessary phase before the long-term value of gold as an asset.

UBS Wealth Management believes that geopolitical uncertainties, ongoing central bank purchases, and safe-haven demand will continue to support gold prices. Recent price adjustments are consistent with early stages of previous geopolitical crises. As risks persist and real interest rates decline, gold could hit new highs again this year.

Ruo Zhiheng, Chief Economist at Yuekai Securities, points out that the recent sharp drop in gold is not a sign of a bull market ending but a deep correction during an upward trend. In the long run, normalized geopolitical risks, strong non-U.S. central bank gold demand, and the risk of global economic “stagnation” rather than “inflation” will provide solid support for gold prices.

However, for investors eager to “bottom-fish,” most institutions advise caution. “Technical analysis indicates that gold has clearly broken below the 60-day moving average, a key support level, which could open further downside,” said the trader. Given that the Federal Reserve’s monetary policy and the dollar’s trend are still evolving negatively, the short-term downward trend is not over. Investors are advised to wait for gold prices to stabilize in the $4,400–$4,600 per ounce range before gradually building long-term positions.