International gold prices have experienced significant volatility recently, with intense battles between bulls and bears. On May 19th, COMEX gold saw a cliff-like drop, plunging $72 in a single day, a decline of 1.56%, falling below the $4,500 mark. The downward trend continued on May 20th, with prices dipping to a low of $4,455.1 per ounce, setting a new low since April. As of 11:00 AM on May 21st, gold prices saw a slight rebound as selling pressure eased, temporarily reported at $4,542 per ounce. The drop below $4,500 per ounce is primarily attributed to a confluence of factors including shifting market expectations for Federal Reserve monetary policy, rising U.S. Treasury yields, easing geopolitical tensions, and concentrated selling by funds. This suggests gold prices will likely continue to fluctuate and seek a bottom in the short term, but the fundamental logic supporting the medium to long-term bull market for gold remains intact. UBS significantly turned bearish on silver. Recent international gold prices have shown wide fluctuations, generally oscillating within a range of $4,300 to $4,800 per ounce, with price movements mainly influenced by U.S.-Iran tensions. U.S. President Trump has repeatedly threatened Iran recently, stating the U.S. would resume military strikes if Iran does not accept an agreement. Iran has responded sternly, indicating it is prepared for all scenarios. It is reported that negotiations between the U.S. and Iran have been repeatedly delayed, with statements from both sides seemingly pointing towards renewed conflict. Against this backdrop, international crude oil prices rebounded sharply, global risk assets faced pressure, the 30-year U.S. Treasury yield hit its highest level since 2007, and the market began to anticipate the Fed turning towards interest rate hikes by year-end. Influenced by tightening liquidity and rate hike expectations, the U.S. dollar index rebounded, putting downward pressure on gold prices. Furthermore, during the period of significant gold price volatility, the Shanghai gold night session experienced an instantaneous sharp drop, drawing widespread attention. Market data shows that during the night trading session on May 19th, the main Shanghai gold futures contract AU2606 plunged instantaneously, with the maximum drop approaching 17%, hitting a low of 830.52 yuan per gram, nearing the 830.48 yuan per gram跌停位 (limit down). However, following the anomaly, market prices quickly rebounded and recovered, with volatility subsiding rapidly. The instantaneous sharp fluctuation in the main Shanghai gold contract AU2606 during the night session on May 19th was mainly due to a large sell order from a specific client being fully executed. Such occurrences are relatively random. At that time, the market lacked sufficient liquidity during the corresponding period, and the large sell order instantly depleted buy orders in the lower price range, creating a momentary vacuum in buy-side interest, which led to the transaction price approaching the跌停位 (limit down). Typically, such events are rare, especially for a globally priced, highly liquid commodity like gold futures. Only a substantial operational error by a large volume of funds could trigger this level of market movement, and the market was able to quickly correct the mispricing thereafter. Therefore, this sharp drop in Shanghai gold prices is not directly related to a "fat finger" error. It is noteworthy that while global stock markets have already shown some desensitization to the U.S.-Iran negotiation deadlock, commodities like gold, silver, and crude oil are still subject to ongoing short-term disturbances. Particularly after oil and gas prices rise, inflationary pressures begin to surface in various countries, which is bound to increase expectations for central banks to raise interest rates in the medium term, which is unfavorable for the price movements of gold and silver. Additionally, UBS recently released a report significantly lowering its silver price forecast and its 2026 supply deficit expectation. Following the report's release, silver prices have entered a correction phase, experiencing a noticeable single-day decline. UBS's downward revision exacerbated bearish market sentiment, especially against the backdrop of profit-taking at highs and macro pressures. Silver's decline is the result of a combination of macro, supply-demand, and technical factors. Short-term volatility remains high, but in the long term, silver is still supported by industrial demand and its correlation with gold prices. The specific price trend depends more on inflation levels, the direction of Fed policy, and actual supply-demand data. Walsh's remarks draw attention. On May 20th, the latest Federal Reserve meeting minutes revealed that most officials believe further interest rate hikes may become necessary if the U.S.-Iran conflict continues to push inflation higher. Although the Federal Open Market Committee (FOMC) decided to keep the benchmark interest rate unchanged in the range of 3.5%–3.75% at its most recent meeting, internal divisions over the policy path have intensified significantly. The meeting saw four dissenting votes, the highest number since 1992, highlighting the increasingly complex policy博弈 (game) within the Fed against the backdrop of the Middle East conflict, soaring energy prices, and re-emerging inflation risks. Furthermore, according to CME's "FedWatch Tool," the probability of the Fed maintaining rates in June is 97.3%, with a 2.7% probability of a cumulative 25 basis point rate cut. The probability for July is 87.2% for unchanged rates, 2.4% for a cumulative 25 basis point cut, and 10.4% for a cumulative 25 basis point hike. According to public data, U.S. CPI increased 3.8% year-over-year in April, and PPI increased 6% year-over-year, both far exceeding expectations, completely reversing the market's previous expectations for rate cuts and raising the probability of a rate hike within the year to 50%. Simultaneously, the incoming Fed Chair, Walsh, holds a distinctly hawkish stance, and Fed officials collectively signaled 'maintaining high rates for a long time, not ruling out hikes.' Currently, the market expects the Fed's monetary policy to be primarily hawkish. Market expectations have gradually shifted from anticipating one or two rate cuts within the year before the U.S.-Iran conflict to now expecting rate hikes. Moreover, with the new chair taking office, their monetary policy governance style is bound to differ significantly from Powell's. Recent Fed officials like Kashkari and Goolsbee have generally expressed hawkish views, while other officials have spoken less. However, judging from the latest dot plot, officials supporting hikes and cuts are gradually diverging, indicating significant internal disagreement among Fed officials. As the term of former Fed Chair Powell nears its end, from a governance style perspective, Powell placed greater emphasis on communication with the market and expectation management. The Fed also released monetary policy guidance reports through tools like the dot plot, allowing the market to form relatively accurate expectations regarding rate hikes and cuts. Regarding balance sheet management, during Powell's tenure, the Fed's balance sheet size grew significantly, a point criticized by the incoming chair, Walsh. Walsh believes the Fed has assumed excessive fiscal responsibilities, which to some extent distorted market pricing, especially by suppressing long-term Treasury yields at low levels. The new Fed chair advocates for a policy mix of rate cuts and balance sheet reduction, potentially using balance sheet reduction to create room for rate cuts. Based on current market expectations and his previous confirmation hearing before the Senate, the inflation level has exceeded his acceptable range, making rate cuts difficult to implement. On the issue of balance sheet reduction, his stance is relatively clear. Therefore, if Walsh adopts aggressive balance sheet reduction operations at the beginning of his term, it would not only cause severe market volatility but also face significant political pressure. Thus, he is more likely to achieve relatively gentle balance sheet reduction through methods like asset duration management and gradually reducing the scale of asset rollovers. When will the bottom be reached? As gold prices continue to fluctuate, the influencing factors have drawn external attention. In the short term, investors need to monitor the direction of U.S.-Iran tensions and the statements from Walsh after taking office, as these two factors are crucial. Among them, the direction of U.S.-Iran tensions has a greater impact. If the U.S. and Iran go to war again, crude oil prices may continue to rise, impacting global risk assets. Simultaneously, the Fed may turn towards rate hikes, further suppressing gold and silver prices in the short term. However, if U.S.-Iran peace talks succeed and the war stops, the Strait of Hormuz opens, crude oil prices fall, liquidity concerns may ease, the market may no longer expect Fed rate hikes, and gold and silver prices may rebound. Currently, the implied volatility of gold and silver options is still in a high-to-decline trend. In the short term, gold and silver may continue to fluctuate with declining volatility, but the medium to long-term outlook for gold and silver remains positive. Looking ahead, international gold prices will likely remain under pressure in the short term. After breaking through $4,500 per ounce, buy-side support still exists below at $4,400 and $4,300 per ounce, with an important low point at $4,098 per ounce on March 23rd. Although many investment banks have lowered their future gold price targets, many institutions still believe the foundation of this gold bull market has not been truly overturned. Among them, JPMorgan Chase, in a recent report, lowered its year-end international gold price target from the original $6,300 per ounce to $6,000 per ounce. It pointed out that if the Strait of Hormuz reopens in the future, gold prices are expected to rebound and challenge the key technical levels of $4,900–$5,100 per ounce. The current round of correction in international gold prices is expected to stabilize around $4,400–$4,600 per ounce, with the $4,200–$4,400 per ounce region acting as strong support. Due to high volatility and profit-taking, silver may test the $65–$70 per ounce area in the short term, but in the long term, both are still in a structural bull market, with a positive medium to long-term outlook for gold and silver prices. In the current high-volatility, trend-unclear environment, it is recommended that investors adopt a strategy of "defense first, buy on dips," maintain light positions, and avoid blindly trying to catch the bottom. The market is currently in an adjustment period dominated by tightening expectations, and gold and silver prices lack clear upward catalysts. It is advisable to remain patient and wait for gold and silver prices to show clear signs of stabilization at the aforementioned key support levels before considering entering the market. Furthermore, investors can also build positions in batches and strictly control position sizes. If you are a long-term investor, you can try to establish small,分批 (batch) long positions when gold prices retrace to around $4,500 per ounce or silver prices touch around $70 per ounce. Avoid going all-in at once to prevent extreme price spikes caused by liquidity risks. Simultaneously, try to avoid leverage and focus on investment opportunities in physical assets, ETFs, and other products.
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