The fourth blow to gold

Gold has finally crashed.

I bought some gold last year. At the beginning of this year, I sold a small portion when the price reached a high. I thought the rest could still rise further. But when I checked my account last night, I found that the price had dropped, and quite significantly. To be honest, I was a bit stunned.

01

Let's first talk about what exactly happened. At 5:15 a.m. Beijing time, the U.S. Central Command announced that it had launched attacks on multiple targets in Iran; this was the second round within 24 hours. The day before, the two sides had already clashed, and the U.S. Secretary of Defense said, "It's going to be a busy night."

The oil price jumped first. WTI crude oil reached $90 per barrel, rising by just over 2%. The inventory at Cushing dropped sharply, and the strategic reserves were also being drawn down.

The inflation data was also active. The U.S. CPI in May increased by 4.2% year-on-year, reaching a three-year high, and the core CPI was 2.9%. The market now believes that the Federal Reserve will raise interest rates at least once this year, by 25 basis points.

You see, the geopolitical situation is escalating, the oil price is surging, and inflation is reaching new highs. All the reasons in the textbooks for gold to rise have come together in one night.

So, what happened?

I analyzed the overall data. The spot price of gold plunged by 4.4%, closing at $4,069 per ounce, breaking below the low in March and hitting the lowest closing price since November 2025.

Silver wasn't much better. It dropped by 3% on that day, and had a cumulative decline of 13% in the past week. The stock market also suffered. The Nasdaq fell by nearly 2%, the S&P 500 dropped by 1.62% to a five-week low, and the Dow Jones tumbled by 953 points. The VIX fear index rose by 11.8%.

The safe-haven asset fell along with the risk assets, and even more severely than most risk assets. This is worth looking into because there have only been two mainstream explanations for previous sharp drops in the gold price.

The first explanation is a stronger U.S. dollar. The U.S. dollar and gold have an inverse relationship in the long term. When the dollar rises, gold struggles. I checked the data from last night. The ICE U.S. Dollar Index closed at 99.93, with a gain of 0.02%, basically unchanged. So, this explanation doesn't hold.

The second explanation is rising interest rates. Gold doesn't generate interest. When interest rates rise, the opportunity cost of holding gold increases.

I also checked the yield of the 10-year U.S. Treasury bond. It rose by 2.4 basis points last night to 4.54%. That small increase can't explain the 4.4% plunge at most.

The U.S. dollar didn't move, interest rates didn't move, and the geopolitical risk was rising. None of the three traditional pricing variables can explain last night's crash. So, why did it happen?

After analyzing, the real clue emerged.

These three assets were all being sold off at the same time. Market participants believe that this is a typical case of margin calls and liquidity clearing. To put it simply, someone received a margin call and panicked. They sold whatever they could to get cash.

There is an interesting detail for comparison. Bitcoin held steady around $61,000 on that day and even closed slightly higher. The yield of the U.S. Treasury bond only rose slightly.

All assets took a hit at 14:30. Other assets managed to recover, but only gold kept falling until the end of the trading session, with no one willing to buy. Putting the clues together, the conclusion is straightforward: Those who sold gold last night were short of cash.

02

Why has the money suddenly become so tight that people have to sell gold to get cash? There is a ready answer on the market: Oracle's earnings report.

Its cloud business revenue and profit both exceeded expectations. Logically, the stock price should have risen. However, after the market closed, the stock price plunged by more than 7%. The only reason for the sell-off is that the company announced a plan to raise $40 billion in additional funds, with $20 billion to be raised through a stock issuance to continue investing in AI capital expenditures.

By the way, the company's free cash flow in this fiscal year is -$23.7 billion.

The combination of good performance, the need to borrow money, and a crashing stock price would have been unimaginable a year ago. A year ago, the market would have rewarded a company with a big increase in its stock price just for saying "increase AI investment." Now, when the market hears "raise $40 billion in additional funds," it runs away.

The market's attitude has changed. It has started to refuse to lend money, even to companies with better-than-expected performance.

I followed this clue and found that the tight money situation didn't happen overnight. According to data from JPMorgan Chase and BNP Paribas, the proportion of cash in U.S. money market funds to the total market value of the stock market has dropped to the lowest level since the 2008 financial crisis.

In simple terms:

The idle money in the market has been fully utilized. Every dollar has a purpose, and no one is holding cash on the sidelines waiting for opportunities. Just at this time, several big spenders have emerged.

The first one is SpaceX.

Elon Musk's company will be listed on the NASDAQ tomorrow at an issue price of $135, and it will raise $75 billion from the market. The amount of subscription money is said to be $250 billion, more than three times the offering amount.

BNP Paribas has calculated that in order to make room for SpaceX, retail investors and funds may sell more than $50 billion worth of other stocks.

Some large funds are already evaluating reducing their holdings of the "Magnificent Seven." They are selling Apple and NVIDIA to free up cash for the new offering. When a boat is full and a fat person gets on, everyone has to make room.

The second big spender is the calendar.

At the end of June, it's the end of the quarter. The U.S. stock market has significantly outperformed bonds in the second quarter. Pension funds and asset allocation funds need to rebalance their portfolios at this time. They will sell stocks and buy bonds to adjust the ratio. BNP Paribas estimates that this could lead to more than $100 billion worth of selling in the U.S. stock market.

The third big spender is the interest rate itself.

The federal funds rate is between 3.5% and 3.75%. By holding cash, you can earn nearly 4% interest per year without any risk.

Cash has never been so valuable. It generates interest on its own, and everyone is short of it. Several big players are queuing up to withdraw it. At this time, those who hold assets are in a race to convert them into cash.

I checked and found that there are also some rules for what to sell.

People who receive margin calls won't sell stocks that have fallen badly because that would be cutting losses, and the price would be low, and the liquidity would be poor. They will sell assets that still have floating profits, have good market depth, and can be easily traded.

Throughout 2026, the first asset that meets these three criteria is gold.

When the gold price dropped sharply in October last year, former Federal Reserve advisor Booth said: When people receive margin calls, they often sell the assets that have the most profits and the strongest liquidity in their hands.

She also added: No one wants to see gold perform like a popular stock. You see, gold was the first to be sold because it's too easy to sell.

03

I reviewed the records of sharp drops in 2026, and gold has taken four hits.

The first time was at the end of January. The gold price reached $5,595, a record high. The champagne for celebration hadn't even been opened yet.

Trump nominated Warsh to be the Chairman of the Federal Reserve. This person is well-known as a hawk, determined to suppress inflation and reluctant to cut interest rates.

As soon as the news was announced, on January 31, the price of gold dropped by 12% in a single day, and the price of silver dropped by nearly 15%. Those leveraged positions that chased the price to the top received their first margin call in their lives.

The second time was in March. On March 2, Iran announced the blockade of the Strait of Hormuz, and the situation in the Middle East escalated significantly. This should have been the time when gold was most likely to rise.

I checked the data from that period:

From March 2 to March 23, the spot price of gold dropped by 17.45%. During the same period, the Shanghai Composite Index dropped by 8.4%, the Hang Seng Index dropped by 8.44%, and the NASDAQ only dropped by 3.18%.

During the three weeks when the war broke out, the decline of the safe-haven asset was two to five times that of the risk assets. Isn't that ironic?

The third time was on June 5. The U.S. non-farm payrolls data far exceeded expectations, and the expectation of an interest rate hike increased. The price of London gold dropped by 3.25% in a single day, and gold, silver, platinum, and palladium all took a hit.

The fourth time was last night. The reasons for the four sharp drops were different. There were personnel appointments, wars, economic data, and margin calls. But the script was the same.

When a certain piece of news was announced, the leveraged positions were forcefully liquidated, and the gold price crashed. It stabilized a few days later, waiting for the next time. The same script has been played four times in a year. Do you still think the problem lies in the script? No, because the people holding gold have changed.

There are two types of buyers in the gold market:

The first type is central banks. In 2025, global central banks bought 863 tons of gold, and in the first quarter of this year, they bought another 244 tons. I like the style of this type of buyer the most. They buy gold and lock it in the vault, not touching it for ten years.

When the gold price drops, they continue to buy. They don't use leverage, don't receive margin calls, and will never be forcefully liquidated. This is called determination.

The second type is trading positions. Futures long positions, leveraged funds, and retail investors in ETFs who chase rising prices. This type of buyer is the opposite. What they are actually buying is not physical gold bars, but the story that "the gold price will rise."

As soon as the story changes, they are the first to run. If they use leverage, they don't even have a say in whether to run or not. The margin call makes the decision for them. How much has the gold price risen in the past two years?

In 2025, the gold price rose by 65% throughout the year, and in less than a month in January 2026, it rose by another 30%. This kind of increase has attracted a large number of the second type of buyers.

I checked some domestic data:

In the first quarter of 2026, domestic gold ETFs increased their holdings by 50.4 tons, a year-on-year increase of 114.88%. As early as February, a fund manager from Pictet Asset Management had warned. The influx of a large amount of retail funds has changed the investment nature of gold, and its volatility pattern is completely different from before.

There were also traditional gold shops that faced risks from hedging transactions. There is a piece of data that can prove the change in its nature.

Goldman Sachs said in a report at the end of May that the correlation between the S&P 500 and gold has reached the highest level in ten years. In other words, the movement of gold is becoming more and more like that of a stock. When the market rises, it rises with it, and when the market is short of money, it gets drained along with it.

The actions of the two types of buyers are clearly shown in the data.

During the sharp drop in March, the SPDR Gold ETF had an outflow of $2.91 billion in a single day, the largest in more than a decade. The trading positions were fleeing. In the same month of March, the People's Bank of China increased its gold holdings by 160,000 ounces, even more than in February. This is the central bank picking up the bargain at a low price.

One side is trampling, and the other side is buying. In the same market, there are two types of buyers going in opposite directions.

Here is my view: The asset itself and the consensus haven't changed, but the hands holding it have. When the pricing power of an asset shifts from hands that hold it for ten years to hands that run as soon as they receive a margin call, its behavior is determined by the leverage of the holders.

Most people think it's a safe-haven asset, but in fact, it's a place full of leveraged speculators. Would you dare to hold a large position in such an asset? I definitely wouldn't.

04

I looked through history, and gold has taken hits like this twice, and both times it recovered well.

The first time was in 2008, after the collapse of Lehman Brothers. The world entered a "cash is king" mode. Hedge funds sold everything that could be liquidated at any cost to meet redemptions and margin calls.

In October of that year, within two weeks, the price of London gold dropped from $913 to $682, a decline of 25%.

Later, as we all know, the Federal Reserve cut interest rates to zero and started the printing press. Three years later, the gold price reached $1,900, almost three times the price at the bottom of the pit.

The second time was in March 2020.

The pandemic triggered a global market crash, and the U.S. stock market had four circuit breakers in two weeks. The price of gold dropped from $1,702 to $1,450, a decline of 15%. As soon as the news of the Federal Reserve's unlimited QE was announced, the gold price rebounded by 16% in April and reached a record high in August of that year.

I did some calculations based on these two cases.

It took 18 months for the gold price to climb out of the pit in 2008. In 2020, it only took 6 months. The difference lies in the speed at which the central bank took action. The pit was created by a lack of liquidity. The faster the liquidity is injected, the faster the pit will be filled.

Understanding this pattern, let's look at the current situation: In the previous two cases, the central bank was on the side of injecting liquidity. This time, the Federal Reserve is on the opposite side.

The federal funds rate is between 3.5% and 3.75%, and the interest rate cuts have been paused since January. The new Chairman, Warsh, was just sworn in at the end of May and is well-known as a hawk. With the CPI reaching 4.2%, the market has already factored in the possibility of at least one more interest rate hike this year.

The Federal Reserve stopped shrinking its balance sheet in December last year and started buying short-term bonds to maintain the reserve. The tap hasn't been completely turned off, but there is no sign of it opening up to inject more liquidity.

To put it simply, the pit is still the same, but the people who used to fill it are just standing by and watching this time. My judgment is that this time, the pit will probably take time to fill on its own.

There is also one thing to note. This round of decline is not entirely due to a lack of liquidity.

Citi just lowered its gold price forecast yesterday, citing weak physical demand. The gold price is too high, and the real demand for gold bars and jewelry is