Why Gold and Silver's Recent Decline Masks a Longer-Term Bull Case

The recent plunge in precious metals has sparked intense debate about whether these commodities face structural headwinds. However, analyst Hong Hao’s latest assessment suggests the decline should be understood as a technical correction rather than a fundamental shift in market direction. According to Odaily’s reporting, the selloff has been primarily driven by margin rule adjustments at the CME, triggering a cascade of stop-losses and forced liquidations that bear striking resemblance to the liquidity crunch witnessed in March 2020.

Technical Shock from CME Margin Rules Amplified the Selling Pressure

The mechanics behind the recent downturn reveal more about forced deleveraging than market fundamentals. When CME adjusted its margin requirements, it forced leveraged positions to unwind rapidly, creating a vicious cycle of stop-loss orders and margin calls. This liquidity squeeze distorted prices in the short term, pushing them well below their fair value. The parallel to March 2020 is instructive: in both cases, mechanical factors in the derivatives market created temporary pricing anomalies that had little to do with underlying supply-demand dynamics. Once this deleveraging process stabilizes and leverage returns to normal levels, prices are expected to realign with their fundamental drivers.

Fundamentals Remain Intact Despite the Near-Term Decline

Beneath the surface volatility, the structural case for gold and silver remains compelling. Geopolitical tensions show no signs of abating, providing steady safe-haven demand for precious metals. Meanwhile, the U.S. continues to grapple with mounting debt pressures—a $40 trillion burden that pressures currency valuations. This fiscal situation, combined with the accelerating global trend toward de-dollarization, reinforces traditional demand for precious metals as alternative stores of value. Central banks worldwide continue accumulating gold at elevated rates, signaling institutional confidence in the long-term outlook. Additionally, industrial applications for silver—ranging from electronics to renewable energy—remain robust, ensuring persistent demand independent of speculative flows.

Historical Precedent Suggests Recovery Is Likely

The 2020 analogy is particularly relevant here. That episode demonstrated that technical corrections, no matter how severe, do not negate secular bull markets. The decline we’re witnessing today appears to follow an identical pattern: leverage unwind, forced selling, temporary dislocation from fundamentals, followed by a reversion to trend. Hong Hao’s analysis suggests that once the leverage cycle completes its course, the fundamental drivers supporting higher precious metals prices will reassert themselves. The long-term bull case remains intact, with each significant decline merely representing an opportunity for accumulation rather than a signal of market exhaustion.