James Alexander Booth
James Alexander Booth
United Kingdom
5mo
Hello to Copiers and Followers, Friday's price action in precious metals was brutal—one of the sharpest single-day declines in decades. Gold plunged around 9-12% from its recent record highs near $5,600 per ounce, while silver suffered an even more extreme drop, falling as much as 26-31% in some sessions from peaks above $120. This wasn't driven purely by shifting fundamentals like a sudden change in inflation expectations or geopolitical calm. Instead, it stemmed largely from momentum-chasing traders using leverage (borrowed money) to amplify their positions during the prior explosive rally. When prices reversed sharply—triggered in part by news like President Trump's nomination of Kevin Warsh as Fed Chair, which strengthened the dollar and altered rate outlooks—highly leveraged longs faced margin calls. Brokers demanded additional collateral or forced liquidation of positions to cover loans. This created a classic negative feedback loop: selling begets more selling, accelerating the drop and turning a correction into a cascade. Traders nursing losses then had to offload other winning assets (stocks, other commodities, etc.) to raise cash, spreading the pressure across markets and amplifying broader selling. This dynamic is akin to a crowded theater where someone yells "fire"—a few people rush for the exits, but the panic spreads, and the stampede crushes what was previously orderly. Or think of it like a highly leveraged house of cards: one card wobbles (a trigger event), and the whole structure collapses quickly under its own weight, even if the underlying foundation (long-term bullish factors for metals) remains solid. My view remains clear: never sell into a market that's being depressed primarily by forced, technical selling rather than a genuine shift in fundamentals. These violent liquidations often create oversold conditions and excellent entry points for patient holders. Over the coming weeks or months, as leverage unwinds, margin pressure eases, and calmer heads prevail, we're likely to see a strong rebound—potentially a major rally. At that point, I plan to look for opportunities to sell into strength and take some profits. In a confirmed bull market—especially during periods of economic growth, currency concerns, geopolitical risks, or central bank buying—history shows that trying to time dips by selling rarely pays off over the long term. Probabilistically, the winning strategy is buying dips rather than selling them. Consider classic examples: The post-2008 gold bull run saw multiple 20-30% corrections, yet holding through them (or adding on weakness) delivered massive gains as the metal rose from ~$800 to over $1,900. Bitcoin's history is full of 50%+ "crashes" during its multi-year uptrends—yet those who sold the panic often missed the subsequent new highs. Even in equities, the S&P 500 has rewarded dip-buyers far more consistently than those who exit on every sharp pullback. The key is distinguishing temporary, momentum-driven washouts (like Friday's) from true trend reversals. With precious metals' strong structural tailwinds still in place—central bank accumulation, persistent inflation hedges, and supply constraints in silver—the odds favor a resumption of the uptrend once this leverage purge runs its course. The fundamentals are strongest for gold as Central Banks have commited to buy hundreds of tonnes in coming years, they are forced buyers which will support the market more than other precious metals. Stay disciplined, avoid the emotional chase, and position accordingly. Dips in bull markets are often gifts, not reasons to run. Regards, Jim
Not investment advice. The author may have financial interests in the mentioned instruments.
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