Minsheng Securities: The "Waterloo" of Gold and Silver?

According to Zhitong Finance APP, Minsheng Securities released a research report stating that after a significant rise, there is often a significant drop, especially when the rise is "unexplainable," which is a classic rule of the capital market. This scenario has also appeared recently in the hot commodities of gold and silver. Last night, gold futures plummeted nearly 6%, and silver futures fell over 7%, marking the worst single-day performance in over a decade, and this is the second significant drop following last Friday. Regarding the subsequent trend, Minsheng Securities expressed a preference for a "short-term rebound of the dollar + adjustment of gold and silver/U.S. stocks."

The main points from Minsheng Securities are as follows:

If the previous rise could be explained by the Federal Reserve's overly loose expectations against inflation, dollar credit, and government shutdowns, the recent simultaneous rise of gold and risk assets like stocks, without any fear of the dollar's rebound, somewhat overturns traditional logic.

The direct triggering factors for last night's drop are not very clear, possibly due to the continued easing of geopolitical tensions, such as the previous U.S.-China relations and the recent Russia-Ukraine issue. Although yesterday, Europe and the U.S. did show some leniency regarding the territorial issues in Russia-Ukraine compared to before, Russia did not accept:

Trump's public "suggestion" was: both Russia and Ukraine should cease fire, stop at the current front lines, and reach an agreement, claiming victory for both sides.

Several European leaders issued a joint statement expressing "strong support" for U.S. President Trump's stance on the Ukraine issue, calling for an immediate ceasefire between Russia and Ukraine, using the current front lines as the starting point for negotiations.

Considering the recent trends in gold and silver, this significant drop appears more like a "tide retreat" of emotional acceleration, which is more evident in silver (London silver):

Since last Friday, after a two-day sharp decline, silver has basically retraced the gains made since October 9.

This round of silver market has obvious short squeeze characteristics. Since October 9, after silver broke through the $50 mark, the market began to focus on the shortage in the spot market. Subsequently, silver prices continued to soar, with leasing rates skyrocketing to over 30%, exacerbating the supply-demand imbalance. After October 13, this round of "short squeeze" continued to accelerate until last Friday when it peaked and fell back.

The continued downward space relies on whether the underlying logic has changed and whether the capital allocation thinking will undergo significant changes, which lacks a foundation before the U.S. economic data "returns."

Of course, regarding the recent unusual combination in the market, Minsheng Securities maintains a consistent view that the current trend of "U.S. stocks (especially technology stocks) + gold and silver + U.S. dollar" rising together is unsustainable:

For the subsequent trend, Minsheng Securities is more inclined to believe in a "short-term rebound of the U.S. dollar + adjustment of gold and silver/U.S. stocks":

In recent days, precious metals, which have seen larger gains, have taken the lead. Looking at the past few years, for precious metals to rise and then stabilize, they must at least break below the 20-day moving average; silver has already done so, while gold has not yet.

However, U.S. stocks are expected to show some resilience due to the protection of third-quarter reports and Trump's "verbal defense."

Minsheng Securities tends to believe that during the vacuum period of U.S. economic data, the current adjustment of gold and silver is mainly about "de-leveraging" and cooling down; the narrative support behind it still exists, but after the data "returns," there is likely to be a second wave of adjustment.

Risk Warning: Significant changes in U.S. economic and trade policies; unexpected spread of tariffs leading to a greater-than-expected slowdown in the global economy and increased market adjustment