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Don here...
Gold is down 4% this morning. Silver down 7%.
Everyone's pointing at tariffs. China selling treasuries. Dollarization. Federal Reserve policy. Government shutdowns.
They're all missing the real story.
The real story is in the options market. It's in the futures market. It's in the margin requirements. It's pure leverage unwinding and there's a lot more room for it to go.
Here's what stopped me cold this morning. I went to the CME rulebook. I hadn't checked it in years.
Gold operates under something called dynamic circuit breakers. If gold moves 10% in a rolling 60-minute window, the CME halts trading for two minutes.
We're down 4%. That means the CME itself is prepared for 10% moves. Maybe more.
In today's free session replay, you'll discover:
- Why GLD is moving faster than the actual gold futures contract. Brandon and I walked through something wild. Options on GLD are now the dominant force in the gold market. The ETF that tracks gold is leading the actual gold futures. The tail is wagging the dog. This only happens when leverage and speculation completely detach from physical demand. It's like watching a tech stock melt down when nothing about the company changed. It's pure leverage.
- The margin requirement that reveals what regulators expect. Initial margin on gold contracts jumped to $30,000. That number isn't random. It means the CME expects gold could move enough in a day to wipe out that entire margin requirement. We're at 4% down. They're prepared for potentially double that move.
- What happens to stocks when leverage starts unwinding in other asset classes. Brandon explained the connection. Margin debt is at record highs in the stock market. If leverage unwinding starts cascading from gold into equities, you're going to see different behavior. This isn't isolated to metals.
- Why you can't just "buy the dip" in gold like you would in stocks. Crypto doesn't have short sellers to provide natural support. Gold is experiencing similar dynamics right now. When shorts cover, they buy and support the market. But when leverage just unwinds, there's nothing to catch it. People are just exiting.
- The options order flow that's actually moving the price. It's not headlines. It's not policy. It's put buying at the ask in GLD slamming shares lower. It's calls being sold. It's the mechanical structure of leverage exiting. Brandon showed exactly how this works. When institutions bought options at elevated prices and now need to unwind those positions, that process creates its own volatility.
- What gold might actually be worth when this leverage gets squeezed out. Here's the uncomfortable truth. Nobody knows the intrinsic value of gold right now because it's masked by speculation. When this unwinds, we'll finally see what actual demand supports. Could be higher. Could be substantially lower. The only thing we know is today's price reflects leverage, not reality.
The administration wants to bring manufacturing home. That's real for gold prices long-term. Central banks are buying. That's real. But the speed and violence of this move today. That's all options and futures leverage.
I was careful this morning. I put on a butterfly trade that costs almost nothing but could be worth something if we get another leg down. That's the stance when you see this kind of dysfunction.
The other thing Brandon and I discussed that matters. Crypto is in a similar state. But crypto is worse because most people can't easily short it. When gold breaks, shorts cover and provide support. When crypto breaks, it just keeps going. There's nothing to catch it except the next buyer who might never show up.
The lesson here. When margin is high. When volatility is elevated. When options markets are dominated by buying puts. You're looking at an environment where things can move in ways that seem impossible until they happen.
And the CME rulebook just told us exactly how far gold could fall before they even hit the pause button.
→ Watch today's session to understand the order flow mechanics Brandon and I broke down and what they mean for your portfolio
To your success,
Don Kaufman
Chief Market Strategist, TheoTRADE
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