Why Did Gold "Crash" and Where Is the Bottom of This Decline?
Family members who regularly read Little God of Finance articles know that since 5200, I have been watching gold form a "double top" pattern decline. I myself profited somewhat from this wave of decline, but yesterday around silver at $70, I chose to heavily bottom-fish, and the result was predictable—I got liquidated! So how should we operate on gold next? How should we fish for this bottom?
📉First, let me briefly look at some reasons for this round of gold decline:
1. Price rose too quickly in the short term, reducing safe-haven attributes: This is the fundamental reason for gold's decline in this round and the real trigger for why gold, a "safe-haven asset," is falling sharply despite the US-Iran conflict still being tense. The final main upswing of this round's gold bull market was severely irrational appreciation, with prices significantly overvalued. Not only is there massive profit-taking selling pressure, but it also gave bears excellent reasons to attack. When both forces activate together, prices naturally plummet. Additionally, gold's major price fluctuations have sharply increased investment risk, causing its original safe-haven attributes to disappear, and instead taking on characteristics of risk assets—this is why gold is declining against the trend despite the US-Iran conflict raging.
2. Inflation-interest rate spiral compression: The conflict-driven surge in energy prices intensifies "reflation" concerns, forcing markets to reprice global central bank policies. The Fed may extend its high-rate cycle, forming a "geopolitical risk raising inflation → strengthening hawkish policy → suppressing gold prices" negative feedback loop.
3. Rate-cut expectations collapse: As mentioned above, high oil prices driving high inflation make the Fed very cautious about rate cuts, with some institutions even predicting a possible restart of rate hikes, with traders' betting probability on this event rising to 50%. This pushes the dollar index higher, breaking yearly highs and recording the largest two-month gain, while the dollar's appreciation further suppresses dollar-denominated gold.
4. Leveraged fund stampede: The previous rapid gold price surge accumulated large profit-taking positions. When prices broke below the key technical level of $5,100, programmed trading stop-loss orders triggered densely, forming a vicious cycle of "decline → liquidation → further decline." Additionally, global exchanges densely raised trading margin requirements, forcing high-leverage investors to close positions and further intensifying selling pressure.
5. Under high gold prices, central bank purchasing momentum plummets: Global central banks' net gold purchases in January were only 5 tons, less than 20% of monthly average demand in 2025. Major reserve nations' slowdown in gold purchases weakens long-term support and intensifies market concerns about demand gaps.
📊How to operate in the near term?
From a short-term perspective, bears are ferocious, consecutively breaking through psychological barriers at 4800 and 4500, creating the largest single-week decline (10.49% weekly drop) since 1983. The only position bulls can defend below is the 4000 round number, with short-term trading mainly favoring shorts.
Entry points: Above 4600
Stop-loss setting: Above 4800
Take-profit position: Around 4000
🙋Should you bottom-fish?
Regarding bottom-fishing, first let me clarify gold's positioning. Gold is today's internationally recognized wealth storage tool with strong liquidity. It once was pegged to the dollar in the "Bretton Woods system" as a currency reserve value. Although this system long collapsed, gold's nature as a value store and even "general equivalent" is beyond question—this differs from bitcoin. Although bitcoin has been included in US strategic reserves, most countries in the world still haven't adopted it as a wealth storage tool. So although gold will experience major short-term fluctuations, it won't drop without a "bottom line" like bitcoin did before. Since there's a bottom line, we can certainly bottom-fish.
Furthermore, since 1900, gold and commodities' real returns show positive correlation with inflation. Against the backdrop of persistent global inflation pressure, gold's inflation-resistant attributes will provide long-term price support—this is historically why gold has always had "long bull, short bear" characteristics.
🙋When to fish?
But Little God of Finance's painful bottom-fishing experience tells everyone to be cautious. If you really can't control yourself, pay attention to the 3900--4000 round number level. After consecutively breaking through 4800 and 4500 psychological barriers, the 4000 round number becomes the position bulls must defend. Considering that declines usually have momentum, we can't rule out the 4000 level being broken short-term, and if this happens, it might be an excellent opportunity to go long from shorting.
For long-term investors, if you're bullish on gold long-term, pay attention to the 3900 and 3520 two key support levels. Among these, the 3900 point is the daily Bollinger Band middle-line long-term support, while 3520 is the starting point of this round's accelerating upswing. Bottom-fishing at this position and long-term holding is believed to generate excellent returns. Additionally, note that global gold mining extraction costs have climbed to about 310 yuan/gram, and adding processing and transportation fees corresponds to international gold prices around $4000/ounce cost line. When gold prices approach or fall below this level, gold mining enterprises will reduce mining volumes or even halt production, thereby contracting market supply and pushing prices up—this is somewhat similar to bitcoin mining costs. When prices fall below mining costs, miners cease operations and purchase bitcoin from the market, and this often signals price bottom formation.
🙋How to fish?
Contrarian bottom-fishing is like pulling chestnuts from fire—it has gambling nature and "burns" are inevitable. But to control injury, first use light positions, second use proper stop-loss. Short-term traders can adopt a "light position + narrow stop-loss" strategy, using 10%-20% position size for trading with 2%-3% stop-loss points. Long-term investors can adopt a "medium position + wide stop-loss" strategy, deploying 30%-50% position size with 5%-10% stop-loss points. This combination both controls single-trade risk and maintains capital utilization efficiency.
👉Finally, closely monitor three major signals in the near term:
1. Fed's tolerance for "oil inflation": Gold is a zero-yield asset. When US real interest rates rise, the opportunity cost of holding gold increases, funds flow out of gold markets, and gold prices fall. Conversely, when real rates decline, gold prices rise. At early 2026, markets unanimously expected the Fed would cut rates 3-4 times in the year, this expectation drove gold prices to new highs. But recent US-Iran conflict caused oil to surge, dramatically raising US inflation expectations. US economic data shows core PCE inflation and CPI data both far exceeded market expectations. How long the Fed can tolerate this war inflation and whether it will truly take rate-hiking measures have deadly impacts on gold and silver prices.
2. Middle East conflict developments: If US-Iran conflict becomes protracted, lasting time exceeds Middle Eastern oil-producing nations' storage limits, impacts expand to other Middle Eastern nations, then global energy situations, policy responses, and geopolitical conflict escalation will face extreme uncertainties. Geopolitical risks may trigger phase-specific liquidity shocks and speculative fund withdrawals. Gold's correlation with other risk assets has already strengthened and may be affected. But if the conflict lasts longer, gradually showing negative economic impacts, market risk-aversion sentiment will warm again, gold's safe-haven demand will be released, pushing gold prices up.
3. Whether central bank gold purchases return to normal: Unlike general investors' "buy more as prices rise," central banks are obviously more rational. Previous irrational gold price spikes made global central banks slow their gold-buying progress. But if gold prices subsequently fall below $4000, some countries' central banks may restart normal gold purchases. Then, following Mama Central Bank to bottom-fish might be much safer.
What's your view on gold prices? How much are you planning to bottom-fish? Welcome to comment and discuss! Wishing everyone financial success every day! #XAUT #XAG
#创作者冲榜
Why Did Gold "Crash" and Where Is the Bottom of This Decline?
Family members who regularly read Little God of Finance articles know that since 5200, I have been watching gold form a "double top" pattern decline. I myself profited somewhat from this wave of decline, but yesterday around silver at $70, I chose to heavily bottom-fish, and the result was predictable—I got liquidated! So how should we operate on gold next? How should we fish for this bottom?
📉First, let me briefly look at some reasons for this round of gold decline:
1. Price rose too quickly in the short term, reducing safe-haven attributes: This is the fundamental reason for gold's decline in this round and the real trigger for why gold, a "safe-haven asset," is falling sharply despite the US-Iran conflict still being tense. The final main upswing of this round's gold bull market was severely irrational appreciation, with prices significantly overvalued. Not only is there massive profit-taking selling pressure, but it also gave bears excellent reasons to attack. When both forces activate together, prices naturally plummet. Additionally, gold's major price fluctuations have sharply increased investment risk, causing its original safe-haven attributes to disappear, and instead taking on characteristics of risk assets—this is why gold is declining against the trend despite the US-Iran conflict raging.
2. Inflation-interest rate spiral compression: The conflict-driven surge in energy prices intensifies "reflation" concerns, forcing markets to reprice global central bank policies. The Fed may extend its high-rate cycle, forming a "geopolitical risk raising inflation → strengthening hawkish policy → suppressing gold prices" negative feedback loop.
3. Rate-cut expectations collapse: As mentioned above, high oil prices driving high inflation make the Fed very cautious about rate cuts, with some institutions even predicting a possible restart of rate hikes, with traders' betting probability on this event rising to 50%. This pushes the dollar index higher, breaking yearly highs and recording the largest two-month gain, while the dollar's appreciation further suppresses dollar-denominated gold.
4. Leveraged fund stampede: The previous rapid gold price surge accumulated large profit-taking positions. When prices broke below the key technical level of $5,100, programmed trading stop-loss orders triggered densely, forming a vicious cycle of "decline → liquidation → further decline." Additionally, global exchanges densely raised trading margin requirements, forcing high-leverage investors to close positions and further intensifying selling pressure.
5. Under high gold prices, central bank purchasing momentum plummets: Global central banks' net gold purchases in January were only 5 tons, less than 20% of monthly average demand in 2025. Major reserve nations' slowdown in gold purchases weakens long-term support and intensifies market concerns about demand gaps.
📊How to operate in the near term?
From a short-term perspective, bears are ferocious, consecutively breaking through psychological barriers at 4800 and 4500, creating the largest single-week decline (10.49% weekly drop) since 1983. The only position bulls can defend below is the 4000 round number, with short-term trading mainly favoring shorts.
Entry points: Above 4600
Stop-loss setting: Above 4800
Take-profit position: Around 4000
🙋Should you bottom-fish?
Regarding bottom-fishing, first let me clarify gold's positioning. Gold is today's internationally recognized wealth storage tool with strong liquidity. It once was pegged to the dollar in the "Bretton Woods system" as a currency reserve value. Although this system long collapsed, gold's nature as a value store and even "general equivalent" is beyond question—this differs from bitcoin. Although bitcoin has been included in US strategic reserves, most countries in the world still haven't adopted it as a wealth storage tool. So although gold will experience major short-term fluctuations, it won't drop without a "bottom line" like bitcoin did before. Since there's a bottom line, we can certainly bottom-fish.
Furthermore, since 1900, gold and commodities' real returns show positive correlation with inflation. Against the backdrop of persistent global inflation pressure, gold's inflation-resistant attributes will provide long-term price support—this is historically why gold has always had "long bull, short bear" characteristics.
🙋When to fish?
But Little God of Finance's painful bottom-fishing experience tells everyone to be cautious. If you really can't control yourself, pay attention to the 3900--4000 round number level. After consecutively breaking through 4800 and 4500 psychological barriers, the 4000 round number becomes the position bulls must defend. Considering that declines usually have momentum, we can't rule out the 4000 level being broken short-term, and if this happens, it might be an excellent opportunity to go long from shorting.
For long-term investors, if you're bullish on gold long-term, pay attention to the 3900 and 3520 two key support levels. Among these, the 3900 point is the daily Bollinger Band middle-line long-term support, while 3520 is the starting point of this round's accelerating upswing. Bottom-fishing at this position and long-term holding is believed to generate excellent returns. Additionally, note that global gold mining extraction costs have climbed to about 310 yuan/gram, and adding processing and transportation fees corresponds to international gold prices around $4000/ounce cost line. When gold prices approach or fall below this level, gold mining enterprises will reduce mining volumes or even halt production, thereby contracting market supply and pushing prices up—this is somewhat similar to bitcoin mining costs. When prices fall below mining costs, miners cease operations and purchase bitcoin from the market, and this often signals price bottom formation.
🙋How to fish?
Contrarian bottom-fishing is like pulling chestnuts from fire—it has gambling nature and "burns" are inevitable. But to control injury, first use light positions, second use proper stop-loss. Short-term traders can adopt a "light position + narrow stop-loss" strategy, using 10%-20% position size for trading with 2%-3% stop-loss points. Long-term investors can adopt a "medium position + wide stop-loss" strategy, deploying 30%-50% position size with 5%-10% stop-loss points. This combination both controls single-trade risk and maintains capital utilization efficiency.
👉Finally, closely monitor three major signals in the near term:
1. Fed's tolerance for "oil inflation": Gold is a zero-yield asset. When US real interest rates rise, the opportunity cost of holding gold increases, funds flow out of gold markets, and gold prices fall. Conversely, when real rates decline, gold prices rise. At early 2026, markets unanimously expected the Fed would cut rates 3-4 times in the year, this expectation drove gold prices to new highs. But recent US-Iran conflict caused oil to surge, dramatically raising US inflation expectations. US economic data shows core PCE inflation and CPI data both far exceeded market expectations. How long the Fed can tolerate this war inflation and whether it will truly take rate-hiking measures have deadly impacts on gold and silver prices.
2. Middle East conflict developments: If US-Iran conflict becomes protracted, lasting time exceeds Middle Eastern oil-producing nations' storage limits, impacts expand to other Middle Eastern nations, then global energy situations, policy responses, and geopolitical conflict escalation will face extreme uncertainties. Geopolitical risks may trigger phase-specific liquidity shocks and speculative fund withdrawals. Gold's correlation with other risk assets has already strengthened and may be affected. But if the conflict lasts longer, gradually showing negative economic impacts, market risk-aversion sentiment will warm again, gold's safe-haven demand will be released, pushing gold prices up.
3. Whether central bank gold purchases return to normal: Unlike general investors' "buy more as prices rise," central banks are obviously more rational. Previous irrational gold price spikes made global central banks slow their gold-buying progress. But if gold prices subsequently fall below $4000, some countries' central banks may restart normal gold purchases. Then, following Mama Central Bank to bottom-fish might be much safer.
What's your view on gold prices? How much are you planning to bottom-fish? Welcome to comment and discuss! Wishing everyone financial success every day! #XAUT #XAG