Société Générale's Sharp Criticism of "Gold and Silver's Major Collapse": Unrelated to Fundamentals, but Limited Upside Returns!

Since investors are still digesting the impact of the market-wide plunge last Friday, gold and silver prices continue to remain under pressure. Although there is still room for prices to fall, Societe Generale’s commodities analysts insist that there are asymmetric upside risks for the full year.

“Asymmetric upside risk” can be understood as a specific scenario where the returns and risks are severely skewed to the upside. Under the framework of asymmetric risk, the emphasis is usually on “significant downside risk with limited upside potential”—meaning you face a high possibility of losses, but the returns you can gain are very limited.

Just a week ago, this French bank also raised its target price for gold this year, stating that “a gold price of $6,000 per ounce by the end of the year is just a conservative estimate.” Now, the bank’s analysts still believe that, despite the massive sell-off pressure on gold and silver, the fundamental outlook for precious metals has not changed.

Not driven by fundamentals

They wrote in their latest report: “Last Friday, not only did metal prices pull back, but leverage also declined sharply. Gold fell 10%, marking the largest single-day drop since the 2008 global financial crisis and the biggest since the early 1980s. Meanwhile, silver plummeted 30%.”

“These extreme fluctuations indicate that this decline is not driven by fundamentals but is the result of position adjustments,” the report states.

Many analysts believe that the trigger for this plunge was Donald Trump choosing Kevin Waugh, the most hawkish candidate, as the next Federal Reserve Chair. This news provided some upward momentum for the dollar, which had fallen to multi-year lows earlier last week.

In response, Societe Generale analysts commented, “Gold prices do not need interest rate increases or decreases to react—they only need a ‘better-than-expected’ monetary policy, and that seems to have been achieved.”

Meanwhile, because gold and silver are in an extremely overbought state, large-scale selling can easily be triggered in an environment of insufficient liquidity.

The report states, “When positions are overly expanded, stop-loss orders will be triggered, calls for margin calls will rise, and systemic funds will reduce risk. The sharp decline in silver is a sign of leverage being released. Profit-taking, risk value limits being triggered, commodity trading advisor (CTA) deleveraging, and all of this happening at month-end have intensified this downward trend.”

“When the dominoes fall, the speed of price declines far exceeds what any fundamental factors can explain,” the analysts said.

Options may provide direction

As for the next price trend, Societe Generale said it is closely watching the options market. The analysts pointed out that in the gold market, they have observed increased trading volume in put options with a strike price of $4,000 expiring in December 2026.

The bank’s analysts summarized: “Overall, the magnitude of gold price increases and decreases is highly asymmetric. As we wrote last week, we remain bullish on gold because we believe that, despite the reduced uncertainty from the Fed’s institutional chaos, the fundamental case for precious metals still exists. We have always believed that a correction could be beneficial to the market.”

They also see a similar trend in the silver market. However, downside risks seem more pronounced, because they have found increased demand for silver call options with strike prices of $200 expiring in May and July 2026.

“Open interest in the $75 put options expiring in March is larger, followed by the $80/oz and $90/oz options. We also noticed a significant increase in short positions in put options expiring in July, especially at strike prices of $65 and $95. On the call side, only 400 new contracts were added, indicating that the market remains cautious about silver’s upside potential,” they added.

(Source: Cailian Press)