SIKANIBAIMA

A Golden Gap

At the end of last week, the price of gold took a spectacular tumble, dropping from $5,600 to $4,800 per ounce in just a few hours. Behind this sharp fall was the appointment of a new head of the US Federal Reserve, who we are told will not be as "flexible" as gold holders had hoped.

Which leads me to make a few observations.
In January 2026, the price of gold rose by 12.8% in a single month, which is good, and over the last 12 months, it has climbed by 80%, which is even better.

In technical terms, gold was therefore massively "overbought," a polite way of saying that many people had made a lot of money very quickly, often by borrowing dollars or yen, and that a sharp drop was therefore to be expected. We're right in the middle of it, and the question is: does the high reached by gold last Wednesday represent a high for this cycle, or is it just a pause to refresh the market?

To answer this question, I'll quickly review the tools I use to judge when to hold gold—or not.
First question: Does gold outperform cash in dollars? Let's find out.

(Continued on the UDE website or tomorrow on the Institut des Libertés website)

When we see an asset like silver lose nearly 30% in a single session, the natural reaction is to look for a fundamental cause. Yet, what happened recently shows that we are reliving the lessons of the past. What we observed was primarily a structural failure, a moment when the internal workings of the financial markets took over because, as with the Hunt brothers, the rules of the game changed mid-play.

⚠️ We must start with a key point that many underestimate: the global benchmark price for silver is determined by futures contracts traded on the COMEX within the CME Group. On these markets, you don't pay the full value of the metal you control. You deposit collateral, which allows you to use leverage. This system is at the heart of the liquidity of modern markets, but it is also their main point of vulnerability. As long as margin rules remain stable and volatility is contained, leverage acts as a performance amplifier, but as soon as the rules change, that same leverage becomes a stress amplifier.

📈 In mid-January, Sovanna_Sek and his associate warned investors of an initial rule change: the CME decided to switch from a fixed dollar margin system to a system where margin is expressed as a percentage of the contract value. In simpler terms, this means that the higher the price of silver rises, the higher the collateral required to maintain a position becomes. Following this, a second decision was made: faced with volatility, the CME repeatedly raised the required margin percentage. The result is a situation where, within a few days, the capital needed to maintain a long position in silver increases sharply, even without the price moving.

🤷‍♂️ Thousands of traders, funds, and trading desks had built long positions with a certain level of collateral in accordance with the previous rules. Overnight, these same positions become insufficiently hedged. As a result, brokers send margin calls, saying, "Either you provide additional cash or you reduce or close your positions." In an already strained environment, not everyone has unlimited liquidity. Many have no choice but to sell. These sales drive the price down, further worsening the situation for the most vulnerable accounts. New margin calls are triggered, and more sales follow, creating a self-perpetuating cycle because the lower the price falls, the more selling is forced.

🇨🇳 Furthermore, direct access to Western futures and ETF markets is not as straightforward for Chinese investors. A significant portion of their silver exposure is therefore channeled through domestic products, notably a futures fund operated with UBS, which has become a central vehicle for gaining exposure to the metal over the months. However, local demand for silver exploded, and the supply of investment products capable of absorbing this demand remained limited. As a result, this fund began trading far above the value of its assets, with premiums of up to 40%. In other words, investors were willing to pay 1.40 for an asset that was economically worth 1. This demonstrates that people pay this type of premium when they are prepared to do anything to gain exposure, somewhat reminiscent of what happened recently with Bitcoin and MicroStrategy, for example, with the results we see today.

📉 The turning point came when the Shenzhen Stock Exchange decided to suspend trading of this fund for an entire day because Chinese investors were stuck. They held a product they couldn't sell, yet they remained exposed to silver, and many of them also had positions in international markets via COMEX futures. If they want to reduce their overall risk or obtain liquidity, the only solution is to sell what is still liquid elsewhere because these are the only remaining exit points. This results in two waves of selling, and when these two flows converge, the paper price plummets. The fundamentals clearly haven't changed. The rule changes have penalized the most aggressive and leveraged positions, just like when the Hunt brothers tried to corner the silver market.

It's always important to learn the history of finance.
$XAG

The changing world order refers to the shift in the balance of power among nations, when one empire collapses and a new one takes its place. This phenomenon has occurred throughout history, with an average cycle of approximately 250 years for major empires, the same factors ultimately leading to their downfall.

The current world order, commonly referred to as the American world order, was formed after the Allied victory in World War II, when the United States became the dominant global power. In 1944, the new global monetary order was defined in the Bretton Woods Agreements, which established the dollar as the world's primary reserve currency. Controlling the world's reserve currency plays a key role in a country's rise to become the wealthiest and most powerful empire.

Before the American empire and the US dollar achieved the status of the world's reserve currency, the empires that held the previous reserve currencies were the British Empire and the pound sterling in the 1800s, and before that, the Dutch Empire and the guilder in the 1600s. As you can see, all the reserve currencies of the past eventually gave way to new ones. Today, this question is relevant to investors, as some are beginning to wonder if, when, and why the dollar will lose its status as the world's primary reserve currency, what might replace it, and how that would change the world. To answer these questions, it is helpful to examine what has happened in the past.

What causes these great global empires to eventually lose their power?

In his research, Ray identified eight key indicators for measuring the power of an empire.

These eight indicators are: education, inventiveness and technological development, competitiveness in global markets, economic output, share of world trade, military power, the strength of their financial center for capital markets, and the strength of their currency as a global reserve currency.

Since each of these factors is measurable, we can use them to assess each country's current power relative to its past power and determine whether it is on the rise or in decline. This is important for understanding the evolving balance of power, because by observing the stage countries are at, we can identify and anticipate future rises and falls of nations.

As an example, Ray notes that "for the first time in its history, the United States is facing a true rival power. China has become a rival power to the United States in almost every respect and is growing stronger than the US in most areas." If this trend continues, China will become stronger than the United States in the most important areas that allow an empire to exert its dominance. At the very least, it will be a formidable competitor.

Last Tuesday, the 30-year Japanese Treasury note experienced a so-called "6-sigma" session. Yesterday, the market went even further, rising to 5-sigma and falling to 6-sigma. All in a single session. To explain briefly, in finance, we measure price variations around an average using the standard deviation, which is called sigma. A 1-sigma movement is common. 2-sigma is regular. 3-sigma is becoming rare. 4-sigma is exceptional. 5-sigma already corresponds to something that, theoretically, should only occur once in a million observations. 6-sigma, on the other hand, is supposed to occur once in 500 million.Examples of Six Sigma-type events include the October 1987 crash with the Dow Jones falling 22% in a single session, the March 2020 Covid crash with the S&P 500 down 12% and the VIX at 80, the surge of the Swiss franc in January 2015 after the abandonment of the EUR/CHF peg, and WTI crude oil turning negative in April 2020. Now you understand.Why do we see extreme statistical events in such different markets within a few days of each other?
1. When a pillar of global finance becomes unstable (the US), leverage tends to contract, and two things happen simultaneously: forced sales of some assets and forced protective purchases of others. Historically, precious metals have often been among the beneficiaries, and now Bitcoin is being added to the list.Long-term interest rates reveal something about the credibility of states, that is, their ability to honor their future debts without resorting to massive inflation. Precious metals reveal something about the credibility of the currency itself, and when both become unstable simultaneously, the monetary framework is called into question.I won't go into detail, but generally when a system starts to crack, the adjustments are brutal, and it's precisely at these times that several high-sigma events occur across different asset classes. I'll say it again: seeing two 6-sigma events in quick succession is not insignificant.
Gold and silver are explicitly telling you that we are experiencing a genuine paradigm shift.We are currently witnessing a fall in the dollar.