Mushin Xuan: The gold rebound hides secrets, is it a buying opportunity?

The spot market for gold and silver has rebounded strongly, with gold prices rising sharply and silver spot prices surging by over 7%-8% intraday, sharply pulling back from overnight lows and shedding the shadow of previous heavy declines. The rally was mainly driven by bargain-buying influx, a slight weakening of the US dollar, and market expectations of geopolitical risk mitigation due to the US-Iran nuclear negotiations held in Oman. Gold is expected to achieve weekly gains; silver has rebounded strongly from a one-and-a-half-month low.

Rising safe-haven demand: Uncertainty in global markets has intensified, especially due to geopolitical tensions and US diplomatic negotiations, triggering market risk aversion. This sentiment has boosted demand for precious metals, particularly silver, which is increasingly attractive as a safe-haven asset. Investors, amid risk-averse sentiment, are allocating funds into gold and silver to hedge against market turbulence. Expectations of rate cuts: Weak signals from the US labor market and relatively soft economic data have heightened market expectations of a Federal Reserve rate cut.

This expectation supports the prices of non-yield assets like silver, as rate cuts typically reduce the opportunity cost of holding precious metals. As more investors seek to diversify their portfolios, silver, as an alternative to gold, has attracted increasing capital inflows. Silver supply and demand: Recently, reports indicated that COMEX might face a silver delivery crisis, with delivery pressures potentially emerging as early as March.

COMEX registered silver reserves have fallen to 103 million ounces, while open interest in the market stands at 429 million ounces. If 25% of these contracts require physical delivery, COMEX could face delivery default risks. Even if March passes smoothly, this delivery pressure could intensify again in May or July, which would undoubtedly exert a strong upward push on silver prices.

In Lao Mu’s view, the gold bull market will create a butterfly effect, transmitting to silver and then driving the prices of base metals higher, until disrupting the new and old momentum transformation pattern of the global economy and pushing up traditional energy prices. For China, rising energy costs may increase trade balance pressures and further challenge industrial corporate profits. Under the current international situation, the impact of commodity price fluctuations has gone far beyond economic and financial significance. The cyclical nature of commodity prices has weakened, and price resilience continues to strengthen. The importance of commodities for national strategic security will rise to an unprecedented level.

Follow-up operational suggestions:

Trend-wise, the US-Iran negotiations on February 6 seem to have made no substantial progress! Coupled with issues in Europe, the Middle East, Asia-Pacific, South America, US debt, and the US dollar, these problems currently lack significant breakthroughs and are difficult to resolve all at once! The long-term fundamentals remain mostly bullish for now; however, when connecting these fundamentals, it appears more like a strategy of “scorched earth” and encirclement of the universe by the US—personal view sees pressure and opportunity coexisting. The “pressure” is that the US’s strategic contraction, westward breakthroughs, eastward outlets are all currently suppressed, so it feels like a long-term premeditated suppression policy rather than just strategic retrenchment.

From the daily K-line of gold, the price has resumed its rebound, aligning with our short-term bearish and long-term bullish trading approach. The Friday close was above the midline of the daily K; next week, we can plan entries based on staying above this midline. Support levels are around 4870, with resistance at 5100, and key resistance near 5160 (0.618 Fibonacci level). The specific market evolution depends on subsequent developments.

In Lao Mu’s view, early next week, focus on the 4-hour oscillation range of 5095-4720; secondly, observe the daily K’s oscillating upward trend; assess where the secondary high point of this rebound is—whether it faces resistance or continues to break through; finally, various fundamental risks have not been fully resolved, and there’s a possibility of fundamental disorder in the mid-to-late stage, leading to increased safe-haven demand and further market changes, pushing gold’s safe-haven breakout beyond 5600.

Markets do not have eternal one-sided booms, only eternal cyclical rotations. Seeing through the superficial stage battles allows one to stay clear-headed amid rises and falls and to capture real opportunities amid volatility.

Hope you can break free from habitual thinking, dismantle mental barriers. I am Mu Xinxuan, a Buddha guiding those with affinity; I only guide those with sincere hearts.