Gold and silver plummet, JPMorgan analysts: Don't panic! The upward momentum will continue, still looking at 6300 by the end of the year

The global precious metals market experienced a historic crash last Friday, with silver plunging nearly 30% in a single day and gold also retreating significantly. Despite the astonishing declines, several Wall Street investment banks believe this was a technical liquidation triggered by overcrowded positions and margin hikes, rather than a fundamental reversal of logic.

Market data shows that the iShares Silver Trust fell 28.5% to $75.44 last Friday, marking the largest single-day drop in history; SPDR Gold Shares dropped 10.3% to $444.95. According to Goldman Sachs' trading department, the volatility of silver surged to extreme levels not seen since the most severe periods of the global financial crisis and the COVID-19 lockdown, with its ETF nominal trading volume exceeding $32 billion.

The immediate trigger for this crash was the Chicago Mercantile Exchange's announcement of increased margin requirements before Friday's close, forcing a large amount of leveraged funds to liquidate positions before the weekend. At the same time, the rebound of the dollar, following President Trump's nomination of Waller as the next Federal Reserve Chairman, also put pressure on metal prices.

Despite the severe price correction, institutional analysts did not panic. Yardeni Research pointed out that the trading volume of major ETFs did not show signs of panic selling. JPMorgan reiterated its strong bullish stance on gold's mid-term outlook, believing that under the mechanism where physical assets outperform paper assets, gold remains an effective portfolio hedging tool.

JPMorgan: Firmly Bullish on Gold, More Cautious on Silver

The JPMorgan analysis team, led by Gregory C. Shearer, stated that they maintain a “firm bullish belief” in gold's mid-term outlook.

In a research report on Sunday, the bank wrote that gold remains a dynamic, multi-faceted portfolio hedging tool, with demand from central banks and investors still exceeding expectations. JPMorgan predicts that driven by central bank gold purchases and investor demand, gold prices will reach $6,300 per ounce by the end of 2026. Although the higher the gold price, the “thinner the air,” the structural rebound does not face a risk of collapse.

JPMorgan currently forecasts that gold purchases by central banks will reach 800 tons in 2026, as the trend of diversifying foreign exchange reserves continues.

In contrast, JPMorgan holds a “more cautious” attitude towards silver. Analysts pointed out that the driving factors behind silver's recent rise are difficult to quantify, and there is a lack of clear structural buyers like central banks. Therefore, silver may face a deeper correction than gold in the near term Nevertheless, the bank still believes that the bottom for silver has been raised, expecting that $75 to $80 per ounce will be the new support level, and silver is unlikely to completely reverse its recent gains.

Margin Hike Triggers Long Squeeze

The sell-off last Friday accelerated sharply after CME Group announced an increase in margin requirements. CME announced that the maintenance margin for gold would be raised from 6% to 8%, for silver from 11% to 15%, and similar increases for platinum and palladium, effective after Monday's close.

Analysts at Yardeni Research pointed out that CME chose to announce this news before Friday's close, effectively warning traders: any positions held over the weekend would face significantly higher collateral requirements on Monday. This move forced many investors to liquidate positions in a concentrated manner at the end of Friday, accelerating the price decline.

Additionally, the news of Waller's nomination as Federal Reserve Chair also triggered market reactions. JPMorgan analysts noted that Waller's nomination sparked a rebound in the dollar, which became a catalyst for a significant correction in gold and silver prices after experiencing "sharp acceleration and excessive extension" over the past two weeks.

However, Yardeni Research believes that Waller tends to stimulate growth through low interest rates and is less concerned about inflation, a stance that theoretically remains favorable for precious metals, thus they question various "conspiracy theories" regarding this crash.

Goldman Sachs: Technical Cleanse After Overcrowding

Mark Wilson, head of Goldman Sachs' trading department, emphasized in a report that investors should not "overinterpret" the sharp decline over the past two days. He pointed out that the direct trigger for this adjustment was the overcrowding of investor positions—total exposure was at an extreme level in the 99th percentile, particularly pronounced in systematic quantitative strategies.

Wilson believes that this is akin to a "position cleanse." Although silver plummeted 30% in a single day and ETF trading volume was massive, this is more of a technical adjustment. He stressed that this adjustment should be viewed in light of the significant gains since January. Core variables driving the market since the beginning of the year, such as the continued movement of the dollar, enthusiasm for AI investments, strong growth in the U.S. economy, and geopolitical reshaping, have not undergone substantial changes.

Despite the market experiencing extreme volatility, assets reflecting core trends continue to perform strongly, with rare earths up 35% year-to-date, nuclear stocks up 21%, and European defense stocks up 20%. Wilson stated that even "meme stocks" have never seen such enormous trading volumes, and this extreme volatility reflects the collision of leverage, retail frenzy, and momentum chasing, rather than a shift in fundamental logic.

Macroeconomic Narrative and Future Outlook

Looking ahead, major institutions generally believe that the macro environment remains favorable for physical assets. Goldman Sachs maintains its annual core view, believing that the appointment of the new Federal Reserve Chair is a key event, and investors should continue to hedge against the depreciation of fiat currencies and the weakening of the dollar. **At the same time, hard assets like copper occupy an important position in investment portfolios **

Yardeni Research also pointed out that considering the producer price index (PPI) released on Friday was higher than expected, along with Waller's policy inclination, the fundamental environment should continue to support precious metals.

Although the market needs to digest the recent extreme volatility in the short term, as Goldman Sachs stated, there is no trade that captures currency depreciation, re-inflation, and geopolitical sentiment better than silver and gold. JP Morgan summarized that caution should be exercised regarding re-entering silver in the short term until the "bubble" confirmed in prices is completely squeezed out, but the bullish view on gold remains unequivocal.

Risk Warning and Disclaimer

The market carries risks, and investments should be made cautiously. This article does not constitute personal investment advice and does not take into account the specific investment objectives, financial situation, or needs of individual users. Users should consider whether any opinions, views, or conclusions in this article are suitable for their specific circumstances. Investment based on this is at one's own risk.