As Wall Street takes turns to be bullish, precious metals experience a sharp decline, giving back the intraday gains and turning into a significant drop

Just as one after another Wall Street bank raised its target price for precious metals, on Friday, influenced by the situation in the Middle East, gold and silver in the U.S. stock market session continued their recent uptrend in the morning session, continuing to rise strongly, reaching a new high around 23:00 Beijing time. However, shortly after, there was a significant plunge in precious metals, with gold and silver giving back all their earlier gains and falling by about 1.5%.

Spot gold fell by 1.5% during the day, closing at $2337.5 per ounce, having reached around $2431 earlier in the day, dropping by about $100 from the high point, a retracement of nearly 4%.

Spot silver fell by 1.65% during the day, closing at $27.97 per ounce, having reached around $29.80 earlier in the day, dropping by nearly $2 from the high point, a significant retracement of about 6%.

At the close of the night session on Friday, Shanghai gold rose by 0.15%, and Shanghai silver rose by 1.01%. During the session, Shanghai gold rose by over 4% at one point, closing at RMB 585, while Shanghai silver rose by 6.66%, closing at RMB 7777.

Earlier on the same day, Goldman Sachs stated that it has raised its year-end gold price expectation from $2300 to $2700 per ounce. Analysts at Goldman Sachs said in a report:

During a rate-cutting cycle, gold outperforms other assets. Although the rate cut has not yet arrived, driven by central bank demand, U.S. fiscal conditions, and geopolitical situations, gold will continue to perform well.

After this week's U.S. CPI data came in higher than expected, the relative stability of gold once again proves that the gold bull market is not driven by typical macro factors. Despite the market's gradually diminishing expectations of a Fed rate cut, gold has still risen by 20% over the past two months.

Traditionally, gold pricing is related to usual catalysts such as real interest rates, growth expectations, and the U.S. dollar. However, so far this year, these traditional factors have been insufficient to fully explain the speed and extent of the rise in gold prices.

In fact, since mid-2022, much of the rise in gold prices has been driven by new incremental (physical) factors, with the most important being the significant acceleration of gold reserves by emerging market central banks and Asian retail buying. These factors have been well supported by the current macro policy and geopolitical situation.

Furthermore, with the expected Fed rate cut, as well as tail risks from the U.S. election cycle and fiscal environment, the bullish case for gold remains clear.

Michael Widmer, commodity strategist at Bank of America, stated that gold and silver are among their most favored commodities, with Bank of America giving a target price for gold of $3000 per ounce by 2025: Gold and silver are being driven by central banks from various countries, Chinese investors, and an increasing number of Western buyers. Macro factors are favorable for gold and silver, including the expected interest rate cut by the Federal Reserve this year.

Although the above macro factors have pushed up the price of gold, some traditional support factors are showing weakness, which are important for maintaining the bull market: the asset management scale of physically supported ETFs has been declining, while non-commercial net positions have remained within a range. In fact, the long-term positive correlation between the price of gold and physically supported ETFs has been broken, and the asset management scale of these tools has been declining. Similarly, on the institutional side, net commercial futures positions are also far below recent highs.

We believe that investors are still waiting for the Federal Reserve to cut interest rates. Once the rate cut is implemented, gold purchases should expand, potentially further driving up the price of gold.

Among the major Wall Street banks, UBS is most bullish on precious metals. UBS analysts predict that the price of gold could nearly double from its current levels, reaching $4,000 per ounce:

The recent surge in gold prices reminds me of a famous saying: "Nothing happened for decades, and then decades of events happened within a few weeks."

Historical data indicates that the price of gold may remain low for a long time, but once it breaks through, the upward trend is often rapid and intense. When deciding whether to chase the recent rise in gold prices or avoid it, investors can look to past market trends for inspiration. Here, I define a "breakthrough" as the gold price being 10% higher than its previous historical peak. If history repeats itself, then it is not too late to participate in the current upward trend in gold.

Investors holding investments for 2-3 years may see the price of gold nearly double, rising to over $4,000.

The signal to take profit is when real interest rates turn negative and a broad-based recession occurs. Looking ahead, since real interest rates are currently high and a recession seems distant, it is still too early to declare the end of the gold price rally.

According to the latest data from the Commodity Futures Trading Commission (CFTC) in the United States, investors' bullish sentiment towards gold has reached a four-year high, while their bullish sentiment towards silver has reached a two-year high. Specifically, speculators increased their net long positions in COMEX gold by 929 contracts last week, to 179,142 contracts, reaching a four-year high; their net long positions in COMEX silver increased to 38,496 contracts, hitting a 23-month high