Precious metals staged a sharp recovery Tuesday following a brutal sell-off that began last week, with gold rising more than 3% to $4,822 per troy ounce and silver surging 5.3% to $83.50 as investors rushed to buy the dip after a 20 percent drawdown.
The rebound follows gold’s largest single-day drop in over 40 years on Friday, when prices plummeted 9% after President Donald Trump nominated Kevin Warsh as the next Federal Reserve chair. The nomination eased market concerns about central bank independence, as Warsh is viewed as a more orthodox choice compared to other potential candidates who might have accommodated Trump’s demands for aggressive interest rate cuts.
Leveraged Asian Traders Face Margin Call Massacre
Monday saw gold prices fall as much as 10% during Asian trading before recovering when London and New York markets opened. Investors and analysts attributed the steep Asian session declines to heavy borrowing by regional speculators who had used leverage to bet on rising precious metals prices.
“People are buying the dip,” said Yuxuan Tang, head of Asia macro strategy at JPMorgan Private Bank. “This is what happens after a 20% drawdown.” Traders who had borrowed money for speculative positions faced margin calls and were forced to liquidate assets to raise cash, amplifying the downturn.
The volatility prompted CME Group, the world’s largest derivatives exchange operator, to raise margin requirements on gold and silver futures. The higher requirements mean traders can borrow less on leverage, which investors said would impact prices in the short term by reducing speculative positioning.
Market Structure Weakness or Healthy Correction?
Asian equity markets also rebounded Tuesday after the precious metals crash spilled over into regional stocks. South Korea’s benchmark Kospi, which closed 5.3 percent lower Monday, rallied more than 5% Tuesday as stabilizing gold prices eased broader market anxiety.
JPMorgan’s Tang said Warsh’s nomination did not fundamentally change the bank’s bullish gold outlook, with expectations for prices to reach between $6,000 and $6,300 per troy ounce by year-end. “I think this correction washed a lot of this speculation out,” Tang noted. “It helps the market to look back into fundamentals and reassess.”
The gold rally was initially sparked by increased central bank bullion purchases after Russia’s foreign exchange reserves were frozen following its Ukraine invasion. More recently, private investors seeking hedges against geopolitical uncertainty and currency debasement by developed market governments have driven prices higher.
Does Leverage Always Destroy Good Trades?
This precious metals crash perfectly illustrates why excessive leverage turns winning positions into disasters. Gold’s fundamental thesis—central bank buying, geopolitical instability, currency debasement fears—remains intact. Yet overleveraged traders got completely wiped out during a 20% pullback that barely dented the long-term uptrend.
This phenomenon is painfully familiar to anyone who’s traded crypto markets. Bitcoin can be up 200% year-to-date, but a 30% correction liquidates everyone using 3x leverage or higher. The asset’s direction proves correct, but position sizing and leverage destroy participants before they can benefit from being right.
The Asian trading session collapse reveals dangerous market structure issues. When prices can drop 10% in a few hours purely due to forced liquidations rather than fundamental reassessment, it signals that too much speculative positioning built up on borrowed money. The CME raising margin requirements is essentially an admission that leverage had become excessive and destabilizing.
For crypto investors, this serves as a reminder that Bitcoin and other digital assets aren’t the only markets subject to violent deleveraging events. Even gold, which is traditionally viewed as the ultimate safe haven, can experience historic single-day crashes when speculative excess meets margin calls. The lesson isn’t to avoid these assets, but to size positions appropriately and avoid leverage that can’t survive normal market volatility. JPMorgan still expects gold at $6,000-plus by year-end, but traders using 5x leverage to get there just got eliminated at $4,300.
