After the "epic shock" in gold and silver, is it time to bottom fish?
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The precious metals market continued Friday's downward trend on Monday, with spot silver plunging 7% in a single day and spot gold falling 4.7%, once breaking below the $4,500 threshold.
The current situation is very clear: profits are being taken, and leveraged funds are being forcibly liquidated. Multiple research institutions believe that although the long-term logic of geopolitical games and debt remains unchanged, in the short term, do not try to catch "bloody chips" in the avalanche. The current decline is the market testing the bottom line of the new Federal Reserve chairman and is a violent correction to previous crazy speculative sentiment.
Gold and Silver Plunge: Not just Warsh, but a chain reaction of de-leveraging
This slump was not caused by a single factor, but rather by the resonance of policy expectations, crowded trading, and exchange intervention.
1. Trigger: Warsh's nomination, hawkish expectations heat up. Both Huatai Securities and Tianfeng Securities pointed out that Trump's nomination of Kevin Warsh as the new Federal Reserve chairman was the direct trigger. Warsh is seen as a "hawk," with core positions including "rate cuts + balance sheet reduction." Tianfeng Securities added that Warsh was known for his "inflation hawkishness" during his 2006-2011 tenure, and the market worries that after he takes office, the crisis of Fed independence will cool down, leading to a dollar rebound and tightening liquidity expectations, suppressing precious metals.
2. Mechanistic Smash: Exchanges act jointly to "cool down". Both Huatai Securities and Caitong Securities emphasized the impact of exchange intervention. CME (Chicago Mercantile Exchange) and SHFE almost simultaneously raised margin ratios. CME raised gold and silver margins twice in a row at the end of January; silver went from 11% to 15%. SHFE followed suit in raising margins.
Caitong Securities supplemented with factors of short squeeze and options Gamma squeeze. As of January 29, the main Shanghai silver contract's open interest ratio reached 8.75, significantly higher than the same period in history; at the same time, a large number of retail investors bought call options, forcing market makers to buy futures for hedging, pushing up prices. Once exchanges step up intervention (e.g., CME has raised gold and silver margins 6 times), funds flow out, and this positive feedback loop instantly reverses into a collapse. In addition, a sharp drop in silver ETF holdings is also an important adjustment signal.
3. Fundamental Reason: Extremely crowded speculative positions and profit-taking. Huatai Securities pointed out that before the plunge, non-ferrous metals (especially silver) were the most crowded long positions globally. Data from Tianfeng Securities shows that gold’s 14-day RSI index broke 90 on January 28, the first time this century, indicating an extremely "overbought" situation.
Founder Securities monitored that on January 29, the silver volatility index rose to 111, hitting a new record high. Caitong Securities believes that the previous rapid price increase was propelled by the combination of short squeeze and options gamma squeeze; once sentiment reverses, the de-leveraging process becomes extremely brutal.
4. Macro disturbance: AI tech stock profit concerns. Huatai Securities also mentioned that financial reports from tech giants such as Microsoft and Tesla raised market concerns about the returns on AI investment, leading to increased risk-off sentiment in US stocks, and some funds sold precious metals to make up for stock market liquidity.
Market Outlook: Long-term logic unchanged, short-term volatility inevitable
Although hit hard in the short term, institutions generally believe that the long-term bull logic for precious metals has not fundamentally reversed.
1. Long-term logic unchanged, short-term enters volatility. Tianfeng Securities believes that gold will enter a period of wide volatility in the short term, with buying sentiment being cautious. However, at a key node in the world competition pattern, central banks' demand for long-term gold allocation will continue to underpin prices fundamentally, and "the story of gold" will not end here. Caitong Securities also states that the long-term logic has not reversed. International concerns over US debt sustainability and Fed independence will continue to drive central banks and private sectors to increase gold reserves.
2. Policy uncertainty persists. Huatai Securities maintains a long-term bullish view, seeing non-ferrous metals as the most obviously resonant varieties driven by global manufacturing cycles, geopolitical restructuring, AI technology, and other factors.
Founder Securities believes that the subsequent market trend will depend on the evolution of multiple scenarios, with key variables including: first, the long-term nature of major power games and possible short-term window of détente; second, the actual progress of AI-driven productivity leaps; third, whether the new Fed chair Warsh can stick to his policy positions (such as independence, balance sheet reduction) in the face of internal political resistance (like nomination opposition, internal differences, pressure from the previous government).
After comprehensive scenario deductions, Founder Securities believes that for the precious metal bull logic to be completely reversed, multiple stringent conditions must be met (such as rapid global productivity revolution, Warsh's forceful tightening without disrupting the market, and fading central bank gold demand), the probability of this scenario is extremely low. Therefore, after fully adjusting and releasing risk, the long-term allocation value of precious metals remains prominent. It is recommended to focus on core companies with steady performance, excellent quality, clear growth potential, and reasonable valuations.
Bottom-fishing timing: Don’t rush to catch falling knives; wait for volatility to return to normal
Regarding the question investors care most about—"When to enter?"—institutions generally recommend patience, and waiting for volatility to normalize.
1. Watch for volatility to subside. Huatai Securities clearly warns that “bottom-fishing” in the short term needs caution. Since market volatility remains high, de-leveraging and bubble squeezing are ongoing. Caitong Securities gives specific quantitative indicators: it is advised to wait until implied volatility falls to below 20%, which may be the time to go long again.
2. Refer to historical correction cycles. Caitong Securities reviewed historical data and notes that in recent years, after gold stages a peak, the average correction lasts about 18 days with a magnitude of about 8%. This offers investors a reference time window. Huatai Securities suggests waiting for market volatility to fall significantly from extreme highs (e.g., gold IV > 35%) and watching for consolidation signals at key support levels (such as gold at $4,700/oz), avoiding trying to catch falling knives in an avalanche.
3. Beware of spot-futures price spread risks. Huatai Securities specifically reminds domestic investors that Shanghai silver has room to correct. When the plunge occurred, the closing price of Shanghai silver on the night of January 30 corresponded to $111/oz, while London silver had fallen to $85/oz. This means Shanghai silver still has about a 30% premium to the overseas market; beware of further correction risk for Shanghai silver.
4. Watch for short squeeze risks in delivery months. Huatai Securities mentions that March is the main delivery month for silver. Currently, CME's total silver futures open interest far exceeds deliverable inventory, so it is necessary to watch for a short-squeeze scenario during delivery month—this is both a risk and a potential point of speculation.
Risk Warning and DisclaimerThe market carries risks; invest with caution. This article does not constitute personal investment advice nor does it take into account individual users' special investment objectives, financial situations, or needs. Users should consider whether any opinions, views, or conclusions herein suit their specific circumstances. Investing based on this is at your own risk. ```