Overnight, the spot gold price plummeted by 6.3%, marking the largest single-day drop in 12 years. Guosen Securities warns that short-term attention must be paid to market rhythm, but the long-term bullish logic has not shown any significant flaws.

In their latest analysis, Guosen Securities points out that this substantial decline was directly influenced by a series of rumors related to the Russia-Ukraine war negotiations, easing trade relations, and the U.S. government reopening.

It is noteworthy that the trading structure during this round of increases is quite fragile—central banks have not participated, and the surge has been primarily driven by investors and speculators. From a technical perspective, gold has reached the upper limit of three standard deviations, and the adjustment is a natural reaction at the technical level.

Guosen Securities advises investors to maintain confidence in long-term allocations while remaining highly vigilant about short-term rhythm risks. Historical data shows that following nine consecutive weeks of gold price increases, the typical adjustment range in the following year is between 20%-40%. Nevertheless, the underlying logic of a long-term bull market in gold remains unshaken, with the global monetary credit system reconstruction and de-dollarization trends continuing to provide core support for gold prices.

Structural Risks in Trading: Absence of Central Banks Makes Market More Vulnerable

The recent rise in gold prices contrasts sharply with earlier trends this year. Observational indicators from Guosen Securities reveal that central banks have not participated in the increase of gold prices since September. Analyzing trading periods, the significant rise in April occurred mainly during Asian trading hours, while the recent surge has primarily taken place in European and American markets, with Asian hours mainly tracking these moves. This phenomenon indicates that the stable purchasing force from central banks has not intervened.

Even more concerning is that this round of gold gain has coincided with a substantial increase in ETF sizes, which starkly contrasts with trading conditions earlier this year. ETF funds represent typical fast-entry and fast-exit capital, leading to significant volatility in the markets they dominate.

When investors and speculators become the main market forces, the fragility of the trading structure significantly increases, explaining why this round of gains concluded with such a dramatic drop. Observations of price divergence across different trading markets since October show minimal price differences, further confirming that speculative funds, not central bank purchases, are driving the trend.

Technical Warnings: Multiple Indicators Signal Adjustment Pressure

Reviewing from a technical standpoint, the recent severe drop in gold prices had already revealed clear signs beforehand. Guosen Securities used three standard deviations as the upper limit for short-term gold price increases and found that since 2010, every time gold approached that upper limit, there has been a noticeable correction, with the current upswing reaching this critical point. A break through this technical indicator often signifies an unsustainable short-term rally.

Another key warning signal comes from the surge in the implied volatility of gold ETFs. Historical evidence indicates that sharp rises in implied volatility typically occur at short-term turning points and moments when trends are exhausting. In the current market, the recent significant spike in implied volatility serves as a clear warning for potential severe adjustments ahead.

Short-term Rhythm Needs Attention, Long-term Bullish Logic Remains Intact Guosen Securities reviewed historical trends following gold's nine consecutive weeks of gains and found that, aside from 1970, the maximum declines after nine weeks of increases ranged from 17% to 42%. In terms of duration, the largest drops typically occurred between 23 and 148 trading days after a turning point. This suggests that investors need to prepare psychologically and manage positions for potential adjustments lasting several months, with magnitude reaching 20%-40%.

Despite facing pressure for short-term adjustments, the long-term bullish logic for gold remains solid. Factors such as the reconstruction of the global monetary credit system, trends toward de-dollarization, continued gold purchases by central banks, and structural supply-demand imbalances provide essential support for gold's price increases, and this recent drop has not altered these fundamental logic. Therefore, the value proposition for long-term gold allocations remains strong.