The squeeze technique on gold and silver reveals a liquidity crisis beyond the fundamentals

The recent collapse in gold and silver prices masks a much more complex phenomenon than a simple market correction. Behind this dramatic decline lies a technical squeeze triggered by specific market mechanisms, according to an analysis published by Hong Hao via Odaily. This scenario highlights how regulatory adjustments can create short-term turbulence without fundamentally challenging the long-term bullish outlook for these precious metals.

CME and Margin Rule Adjustments: The Trigger for Market Chaos

The technical squeeze observed in the gold and silver markets originates from changes in margin rules imposed by the CME. This adjustment triggered a devastating chain reaction: investor positions fell below minimum margin thresholds, automatically triggering widespread stop-loss orders. This cascade of liquidation orders created massive selling pressure, forcing prices to plunge well below levels justified by fundamentals.

The situation closely resembles what happened in March 2020, when markets experienced a similar price distortion caused by acute liquidity issues rather than a structural change in market dynamics. At that time, margin calls also became widespread, creating an environment where prices no longer reflected underlying economic realities.

Liquidity and Cascading Stop-Losses: The Mechanics of a Technical Squeeze

The mechanism of the technical squeeze operates according to an unstoppable logic: the more prices fall, the more stop-losses are triggered, worsening the downward spiral. Investors, unable to maintain their positions amid increasing margin calls, are forced to sell at a loss. This forced selling exerts additional downward pressure on prices, creating a negative feedback loop where liquidity evaporates precisely when it is most needed.

However, this phenomenon is not indicative of a structural weakness in the gold and silver markets. It is rather a temporary technical correction amplified by margin mechanisms—a situation that can be resolved once debt levels return to more reasonable levels and liquidity is restored.

Fundamentals Remain Strong: Gold, Silver, and the Long-Term Bullish Trend

Beyond this short-term storm, the fundamentals supporting gold and silver remain remarkably solid and unchanged. The structural factors underpinning the prices of these precious metals remain in place: ongoing geopolitical tensions create continuous demand for safe-haven assets, while the US public debt exceeding $40 trillion raises existential questions about the long-term viability of the current monetary system.

The global trend toward de-dollarization is accelerating, prompting central banks to diversify their reserves with ongoing gold accumulation. Meanwhile, industrial demand for silver remains supported by growing technological applications and global energy transitions. These structural elements ensure that once this debt reduction phase is over, prices should quickly realign with their fundamentals.

Hong Hao concludes that the recent decline, though spectacular, presents a long-term investment opportunity rather than a sign of structural weakness. As leverage normalizes and liquidity levels stabilize, the bullish trend should resume its trajectory, driven by unshakable fundamentals and macroeconomic dynamics favorable to the appreciation of gold and silver.