A new perspective on the decline of gold and silver: When leverage distorts market reality

Recent price declines in gold and silver markets have sparked considerable discussion. Hong Hao, a renowned financial analyst, offers a fascinating interpretation of this phenomenon: financial leverage and its overregulation in the CME system may not signal the end of a bullish trend but rather a technical crisis caused by excessive risk leveraging. According to Odaily analyst, the current events align more with the logic of “debt panic” than a genuine bearish market transformation. This perspective provides a more optimistic reading of the current situation.

CME and Financial Leverage: How Margin Rules Became a Trigger

The key to understanding the recent volatility is the change in margin rules at CME. New standards for collateral requirements triggered a cascade of stop-loss orders and subsequent margin calls. This mechanics of financial leverage acts similarly to a virus in an online ecosystem—once activated, it causes chain reactions. Traders forced to close positions contribute to artificially lowering prices. Hong Hao emphasizes that this is not an organic market recession but rather a hydraulic crisis of a system overcapitalized with derivatives and financial leverage. Leverage itself became the trigger for mass liquidation, which in the short term will fully normalize valuations.

Technical Corrections versus Fundamental Bear Market

The analyst points out a fundamental difference between what we are witnessing now and a true bear market transformation. March 2020 offers an instructive parallel—at that time, similar drastic price movements resulted from a liquidity crisis, not a structural break in market fundamentals. Once liquidity normalizes and financial leverage returns to reasonable levels, prices will revert to their underlying valuation. Hong Hao sees this as a clear distinction: this decline is a deleveraging phase within a long-term bullish cycle, not its end. Often, such technical “shakeouts” of positions strengthen the health of the subsequent upward move.

Factors Supporting a Long-Term Bullish Trend in Precious Metals

Although short-term fluctuations are driven by financial leverage and market panic mechanics, the fundamental support for gold and silver cannot be ignored. Geopolitical tensions in key regions remain unchanged and continue. The U.S. public debt approaching the 40 trillion dollar mark creates structural pressure on monetary stability. The global trend of de-dollarization is gaining momentum and reinforces the primary function of precious metals as reserve assets. Central banks worldwide continue to purchase gold—this trend shows no signs of slowing down. Industrial demand for silver remains strong due to expanding technologies focused on energy and photovoltaics.

While financial leverage in the short term creates artificial volatility and price distortions, this fundamental arc remains intact. Hong Hao concludes that the current decline is an opportunity to reorganize excessive leveraging, not a signal of a bear reversal. Once market leverage and sentiment normalize, prices are expected to realign with their deeper fundamentals, and the long-term bullish trend will regain its momentum.