Market Review: Gold and Silver Plummet Over Two Days with Unusual Volatility
Precious metals continued their weak trend on Monday following a sharp decline last Friday. According to the market description by Financial Association, spot gold fell about 9.25% in one day last Friday, marking one of the largest single-day drops in nearly 40 years. Spot silver dropped about 26.42% on the same day, setting a record for extreme volatility, with further declines and quick reversals during Monday's trading.
Various international media and institutions have labeled this downturn as a classic case of "crowded trade unwinding" and "deleveraging." After substantial short-term gains, gold and silver prices have become significantly more sensitive to changes in the dollar, interest rate expectations, and margin requirements.
Trigger Factors: Personnel Expectations Boost the Dollar, Disrupting the "Devaluation Trade" Logic
The start of the market sell-off has been attributed to the interpretation of Donald Trump's nomination of Kevin Warsh as the Federal Reserve Chairman. If the new chairman is more inclined towards "inflation control and liquidity tightening," it could undermine the previous narrative supporting gold and silver, which relied on "dollar devaluation/monetary expansion hedging." A stronger dollar would further suppress the pricing of non-interest-bearing assets.
This also explains the rapid pace of the decline: when the core narrative shifts, short-term funds often retreat simultaneously, quickly transitioning prices from "trend ascent" to "risk control priority."
Amplifiers: Margin Increases and Concentrated Liquidation Accelerate Deleveraging
Apart from macroeconomic expectation changes, transaction mechanism "amplifiers" are equally crucial. CME Group's increase in margin requirements for metal futures has been seen as exacerbating the need for liquidation, forcing some leveraged positions to reduce exposure in a short time, creating a chain reaction.
In such an environment, prices reflect not only supply and demand but also "position structure": who is using leverage, who needs to add margin, and who must sell first to exchange for cash. Once short-term liquidity thins, volatility can exponentially amplify.
Market Disagreement: Short-term De-bubbling, Long-term Logic May Not Be Over
Opinions are divided on whether the bull market is over. Some voices see this as more of a repricing of prior excessive gains and crowded positions, driven by sentiment and position. Others emphasize that fiscal and structural uncertainties have not disappeared, and there may still be a need for medium to long-term allocation of precious metals.
For investors, the more pragmatic points of observation ahead could be: whether expectations for the dollar and real interest rates continue to rise, whether margin and position adjustments have concluded, and whether the volatility of precious metals returns from the "abnormal range" to a tradable range.
