Can gold and silver be bottomed out after the plunge?

Recently, the prices of gold and silver have experienced a significant drop, mainly due to the following core factors:

💸 Policy expectations reversal, strong return of the US dollar

This is the direct trigger for the decline. Previously, the market generally expected the Federal Reserve to significantly cut interest rates in 2026, which raised gold and silver prices. However, multiple factors led to a complete reversal of this expectation:

1. Federal Reserve Chair Nomination: Trump's nomination of the hawkish former Federal Reserve Governor Kevin Warsh as the next chair raises market concerns that he will adopt a tighter monetary policy, even reducing the scale of interest rate cuts or delaying the timing of cuts.

2. Interest Rate Decision: The Federal Reserve decided to pause interest rate cuts at its January meeting, maintaining interest rates unchanged, reinforcing market expectations for "high rates lasting longer."

3. Strengthening of the US dollar: The shift in policy expectations has driven the dollar index to soar, making gold and silver priced in US dollars more expensive for investors holding other currencies, thereby weakening demand.

📉 Massive profit-taking, market "stampede" escape

Before the plunge, gold and silver assets had accumulated astonishing gains, laying the groundwork for a correction.

● Profit-taking escape: Since the beginning of 2026, spot gold has risen about 25%, and silver has surged over 60%. After achieving huge short-term profits, both institutional and retail investors have a strong desire to sell and cash out to lock in profits.

● Crowded trades: Market positions are highly concentrated, and when prices start to drop, it triggers a "long-killing long" stampede effect, with a large number of sell orders flooding out, exacerbating the decline.

⚙️ Leverage and technical factors trigger a vicious cycle

● Forced liquidation: The prior surge attracted a large amount of speculative funds using high leverage. When prices drop and hit stop-loss lines, it triggers automatic selling from programmed trading. At the same time, to control risks, the Chicago Mercantile Exchange (CME) has repeatedly raised futures margin requirements, forcing high-leverage traders to liquidate, further amplifying selling pressure.

● Technical overbought: Before the plunge, the relative strength index (RSI) of gold had reached an extreme high above 90, indicating that the market was in a serious "overbought" state, with strong demand for a correction.

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