According to a report from Orient Securities, on the evening of October 21, gold and silver prices experienced a significant decline, with London gold dropping by as much as 6.3% that night to $4002.89, falling below $4100 and approaching the key $4000 level. This represents the largest single-day drop in 12 years since April 2013. From an odds perspective, there is a favorable outlook for gold prices to find support at this critical $4000 level; if gold prices continue to decline, the odds of investing in gold may gradually increase. From a probability standpoint, it is necessary to wait for the implied volatility of gold ETFs to correct to around 20% for gold prices to stabilize. Investors are encouraged to focus on leading global copper and gold mining company Zijin Mining Group Company Limited (601899.SH, Buy), which is expected to see a continuous increase in gold production quarter-on-quarter, and the copper sector may experience significant growth by 2026.
Key points from Orient Securities are as follows:
Reasons: The situation is not driven by expectations, but rather trading. The end of silver short squeezes has led to an expected release of volatility. The market perceives possible positive factors regarding a ceasefire between Russia and Ukraine, which has alleviated previous market risk aversion sentiments. However, the firm believes that Trump's strong stance towards Ukraine does not support a ceasefire. Therefore, the primary reason for the recent decline is not a change in expectation but a trading-related issue. Since October, the London silver spot market has been in continuous shortage, leading to a squeeze-driven surge in silver prices. Until October 21, when Reuters reported that traders airlifted nearly a thousand tons of silver to the London precious metals market from China and the U.S., alleviating this situation, gold corrected alongside the release of short-term volatility from the end of the silver squeeze.
Price: The medium-term upward logic for gold prices remains unchanged, with expectations for solid support at the $4000 level. A review of the significant correction in gold prices back in April shows that on April 18, London gold reached a high of $3500, with the first correction low on May 1 at $3201, marking a decline of 9.15%. The second correction low on May 15 was $3120, with a maximum retracement of 10.85%. In the current round, the gold price peaked at $4381 on October 20, and the firm anticipates support at the critical $4000 level.
Volatility: The implied volatility of gold has decreased, and they are waiting for the implied volatility of gold ETFs to correct before stabilizing. The implied volatility (IV) of gold prices, as measured by the CBOE Gold ETF, shows the market's expectations of future price fluctuations based on capital flows. Since September, volatility has remained below 20%, gradually rising to a peak of 32.78% on October 16. After the significant drop on the evening of October 21, volatility was partially released, dropping to 29.82% on October 22. Simultaneously, the implied volatility for the main gold futures contract on the domestic exchange fell to around 26%. Looking ahead, the firm projects that as gold prices enter a temporary consolidation phase, accompanied by a continued decline in volatility, prices may stabilize once implied volatility drops to around 20%.
Risk Warning: Changes in U.S. and other countries' fiscal and monetary policies, shifts in U.S.-China relations, and trading-related factors that may impact market trends.