Margin Call Triggers Sharp Correction in Gold and Silver, But Bullish Trend Remains Intact

Recently, the gold and silver markets experienced a significant decline that surprised many investors. According to Hong Hao’s analysis cited by Odaily, this drop in precious metal prices is not just a normal correction but was triggered by margin call mechanisms following CME’s adjustment of margin rules. Understanding what a margin call is and how it impacts the market is key to comprehending the current volatility.

What Is a Margin Call and How Does It Affect Precious Metal Prices

A margin call occurs when the value of the collateral provided by a trader falls below the minimum threshold set by the broker. CME’s adjustment of margin rules increased collateral requirements, forcing thousands of traders to close positions immediately or add more capital. This wave of forced selling creates a domino effect, leading to short-term liquidity crises and sharp price distortions.

CME Margin Rule Adjustments Trigger Massive Deleveraging

This margin call phenomenon is similar to what happened in March 2020, when the market experienced a similar shock. At that time, panic selling and margin calls caused temporary market dislocations, but fundamentals remained stable. Likewise, the current situation—ongoing deleveraging—is a technical adjustment within the context of a long-term bullish market, not an early sign of a structural bearish market.

Fundamental Factors Remain Strong: Long-Term Support for Gold and Silver

Although prices are currently correcting, the fundamental basis for a bullish outlook remains solid. Several key factors continue to drive demand for gold and silver: first, ongoing global geopolitical tensions create safe-haven demand; second, U.S. debt reaching $40 trillion raises concerns about currency stability; third, the accelerated global de-dollarization trend driven by various countries; fourth, central banks worldwide continue increasing gold purchases as an alternative reserve; fifth, industrial demand for silver remains strong, especially from the technology and renewable energy sectors.

Once market leverage returns to normal levels and margin calls subside, prices are projected to realign with strong fundamentals. Hong Hao emphasizes that this technical correction phase will serve as a transition toward sustained price strengthening, with the long-term bullish trend expected to continue as the support from these fundamental factors remains solid.