Recently, when I opened market trading apps, precious metals investors seemed to be in a rather unhappy mood.
Gold has been pulling back from a high of $5,608 at the beginning of the year and has now fallen to around $4,100, a drop of over 25%; Silver fared even worse, being cut in half and falling back from above $120 to $56.
Many people look at the green candlestick and their first reaction is: "The bubble has burst, run quickly." ”
But in Kingtech's view, if you only focus on the price on paper, you might miss an ongoing "epic short squeeze." The market is now playing out a dramatic "openly building the boardwalk, secretly passing through the old warehouse": paper prices are falling, but physical inventories are drying up.
| Price "Fake Drop": The Central Bank is falling, retail investors are buying
The strangest part of this round of decline is: who is buying?
Logically, a price drop should scare off buyers. But the data tells us the exact opposite. Data from the World Gold Council shows that while gold prices fell 14% in the second quarter, central banks worldwide set a record by buying 288.9 tons of gold.
What does this mean? This is equivalent to the fact that during discount season, the biggest "big players" not only haven't fled, but are actually buying up.
Why? Because this isn't for hype, but to "save lives."
After witnessing Russia's foreign exchange reserves frozen, central banks around the world (especially Poland, Turkey, India, etc.) are frantically converting the dollar into gold. This kind of buying is cost-related; once purchased, it's locked in the basement and basically never returns to the market.
| The silver "black hole": the more you use it, the less it gets, and you just can't stop
If gold is the central bank's "ballast stone," then silver is the industrial "consumable."
The biggest difference between silver and gold is that gold mined up is basically stored in the treasury, whereas more than half of the silver mined out is "used."
The silver market is now facing an unsolvable vicious cycle:
Photovoltaics are "earning" silver: Although technology is advancing and people want to save some silver, photovoltaic installations are growing too quickly, and total consumption remains astonishing. AI is "grabbing" silver: data centers, high-voltage switches, electric vehicles—these high-end manufacturing sectors rely on silver's conductivity. Supply is "lying flat": 80% of the world's silver is associated with copper, lead, and zinc. In other words, unless copper mines expand production, silver prices will skyrocket, and mining companies won't be able to generate more silver.
The result is: six consecutive years of supply deficit. This year, the gap has not been filled; instead, due to the rigidity of industrial demand, it has widened further.
| Paper vs. Physical Thing: A magic trick about to be exposed
If physical goods are so scarce, why are prices still falling?
The answer lies in the hands of the "paper silver."
Wall Street investment banks and funds sold off "paper contracts" in the futures market, forcibly suppressing prices. It's like a magic show: the stage shows "ample supply," but backstage it's "inventory is running low."
But this trick doesn't last long.
Manifest inventories in London and New York have fallen to ten-year lows. Once industrial users (such as photovoltaic factories) find they cannot buy spot goods, or the central bank continues to hoard, the meager inventory in the futures market is simply not enough for delivery. At that point, it will be a new, even fiercer "short squeeze" rally.
Kingtech Perspective | How to Plan Before the Storm?
The current precious metals market is like a spring being tightened. High fiscal deficits (with US interest payments as a percentage of GDP reaching a record high) are the foundation, while central bank gold purchases and industrial shortages are the two driving forces.
Three suggestions for investors:
1. Don't be scared off by candlesticks; focus on the "physical" logic: the current decline is a redistribution of paper wealth, not the destruction of physical value. For long-term funds, the current pullback is actually an opportunity to get on board.
2. Silver is more elastic than gold: In the next round of price increases, due to extremely low inventories and rigid industrial demand, silver's explosive power may far surpass gold.
3. Beware of "Disorderly Squeezes": Once inventory data deteriorates further, or geopolitical factors (such as tariff policies) ignite the fuse, prices may experience irrational surges.
Nowadays, precious metals fall in price, while prices rise in logic. When everyone is bearish, it is often the eve of the physical delivery crisis erupting.
