Guosen Securities: The technical indicators for gold are approaching an extreme; short-term attention to timing is needed, but the logic for a long-term bull market has not shown obvious flaws.

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Overnight spot gold prices plunged by 6.3%, marking the largest single-day drop in 12 years. Guosen Securities reminds investors to be mindful of timing in the short term, but sees no apparent flaws in the long-term bull case.

In its latest report, Guosen Securities analyzes that this sharp decline was directly influenced by a series of rumors, including Russia-Ukraine war negotiations, easing trade relations, and the reopening of the U.S. government.

More noteworthy is that the trading structure of this rally is extremely fragile—central banks were not involved, with investors and speculators as the main drivers. In addition, from a technical perspective, gold had reached the upper limit of three standard deviations, and the correction is a natural technical response.

Guosen Securities reminds investors to maintain confidence in long-term allocations while staying highly alert to short-term timing risks. Historical data shows that after nine consecutive weeks of gains in gold, the typical adjustment over the following year ranges from 20% to 40%. Nevertheless, the core logic underpinning the long-term gold bull market remains intact, with the restructuring of the global monetary credit system and the trend toward de-dollarization continuing to provide key support for gold prices.

Trading Structure Hidden Risks: Central Banks’ Absence Worsens Market Fragility

This round of gold’s surge is fundamentally different from the rally at the start of this year. Indicators constructed by Guosen Securities show that central banks did not participate in the gold rally since September. Analyzing trading sessions, April’s gold surge mainly happened in Asian hours, whereas this rally was largely during US and European hours, with Asia mainly following the trend. This shows that the stabilizing force of central bank gold-buying has not intervened.

Even more concerning, this rally in gold has been accompanied by a significant expansion of ETFs—a stark contrast to the trading condition at the beginning of the year. ETF capital is typically hot money, entering and exiting rapidly, resulting in more volatile market moves.

When investors and speculators become the market’s main force, trading structure vulnerability increases significantly. This also explains why this rally ended with such a dramatic drop. Since October, price discrepancies across different trading markets have been minimal, further confirming that speculative capital, rather than central bank purchases, is driving the trend.

Technical Warning: Multiple Indicators Signal Pressure for a Correction

From a technical perspective, signs of this gold crash were apparent beforehand. Guosen Securities reviewed gold price moves using the upper limit of three standard deviations as a short-term upper bound since 2010, and found that each time gold hit this level, a correction followed. This current run up had reached that inflection point, and breaking through this technical indicator often signals short-term uptrends are unsustainable.

Another key warning signal is the spike in implied volatility in gold ETFs. Historical experience shows that sharp rises in implied volatility usually occur at short-term turning points or when trends are exhausted. In this round, implied volatility has surged recently, giving a clear warning for an imminent sharp correction.

Short-term Needs Caution on Timing, No Significant Flaw in Long-Term Bull Logic

Guosen Securities reviewed historical data on gold’s price moves after nine consecutive weeks of gains, finding that except for 1970, the maximum drop after such rallies ranged from 17% to 42%; in terms of duration, the largest declines happened within 23 to 148 trading days after the inflection point. This means investors should psychologically and strategically prepare for adjustments of 20%-40% that may last several months.

Despite short-term correction pressure, the logic of the gold long-term bull market remains solid. The restructuring of the global monetary credit system, de-dollarization, continued central bank gold purchases, and structural supply-demand imbalances all underpin further gold appreciation, and this sharp drop has not changed those fundamental factors. Therefore, the value proposition of long-term gold allocation is undiminished.

Risk Warning and DisclaimerThe market entails risk, and investments should be made cautiously. This article does not constitute personal investment advice and does not take into account the specific investment objectives, financial situation or needs of any individual user. Users should consider whether any opinions, views, or conclusions in this article are appropriate to their own circumstances. Investing accordingly is at your own risk. ```