Gold-Silver Decline Triggers Margin Call Mechanism: Deleveraging or Bearish Signal?

Latest analysis by Hong Hao offers a fresh perspective on the dramatic correction experienced by the gold and silver markets recently. Through Odaily’s report, he reveals that the margin call mechanism is not just a normal market reaction but a direct result of CME’s adjustment of margin rules, creating a domino effect across the derivatives market.

Margin Call Mechanism and Cascading Liquidation

CME’s adjustment of margin parameters has triggered a series of interconnected events. When margin requirements are tightened, previously overleveraged trader positions are forced to face margin calls, which occur when brokers demand additional funds due to significant declines in position value. This triggers widespread stop-loss orders, leading to massive liquidations and unbalanced selling pressure.

This phenomenon closely resembles the market dynamics of March 2020, when extreme volatility caused liquidity crises and significant short-term price distortions. However, it should be emphasized that these mechanistic characteristics differ from indications of a sustained structural bearish market.

Fundamentals Remain Strong Despite Increased Volatility

Although experiencing short-term pressure, Hong Hao emphasizes that the fundamental support for gold and silver remains solid. Several key factors continue to drive the markets:

First, ongoing geopolitical tensions provide a safe-haven appeal for precious metals. Second, the US debt reaching $40 trillion creates a deflationary environment favorable to gold as a store of value. Third, the global de-dollarization trend encourages central banks to diversify reserves into alternative assets like gold. Fourth, central banks continue to buy gold consistently as part of their reserve diversification strategies. Fifth, industrial demand for silver remains strong, driven by manufacturing and technological needs.

Deleveraging Phase in the Context of Long-Term Bullish Markets

Hong Hao’s analysis classifies the current decline as a deleveraging phase and technical correction, not the end of the bullish trend. Deleveraging is a natural process of market correction after excess leverage has been accumulated. Once leverage returns to balanced and healthy levels, prices are expected to realign with the underlying fundamental factors.

In conclusion, while short-term volatility will persist, the long-term bullish structure for gold and silver is expected to continue its upward momentum afterward. Margin call adjustments are not the end of the story but a chapter in the larger bullish narrative.