Perfect Storm: When "Wash Shock" Meets "Epstein Shadow"—What Are Global Assets Experiencing?

From the epic plunge in gold and silver to the wobbling US stocks, a cross-market liquidity crisis is brewing.

1. Black Weekend: The "Mass Kill" Stampede Across Multiple Asset Classes

The first weekend of February 2025, global financial markets experienced a textbook "Perfect Storm."

The precious metals market was the first to ignite the crisis. On January 30, international gold prices plummeted from nearly $5,600 per ounce, dropping over 10% in a single day—the largest single-day decline since the 1980s; silver crashed over 26%, briefly falling below $80 per ounce, setting a record for the largest single-day drop. As of February 2, spot gold had fallen below $4,700 per ounce, nearly $1,100 below its peak.

The cryptocurrency market followed closely. Bitcoin dropped below the psychological level of $75,000 over the weekend, hitting a short-term low, breaking the previous active realization support at $87,000.

US stock futures also came under pressure. Before the market open on February 2, Nasdaq futures fell nearly 1%, the S&P 500 retreated from its high, and the VIX fear index surged to 17.44, indicating market sentiment had shifted to caution.

This is a rare synchronized sell-off across asset classes, driven by a series of macro risks erupting simultaneously.

2. Triple Impact: The Straw That Broke the Market

First: Wash Nomination—The Policy Paradox of "Hawkish Rate Cuts"

On January 30, Trump officially nominated Kevin Warsh as the next Federal Reserve Chair.

Who is Warsh? During his tenure as Fed Governor from 2006-2011, he was a staunch opponent of quantitative easing. When the Fed launched QE2 in 2011, he resigned in protest. He advocates for a "systemic shift" to reduce the massive balance sheet, even if it means tightening policies.

Strangely, Warsh recently proposed a "limited rate cut + balance sheet reduction" compromise in a Wall Street Journal column—interpreted as a "hawkish rate cut": superficially aligning with Trump's easing demands, but actually tightening liquidity through balance sheet reduction.

This policy mix has a deadly impact on markets. The plunge in gold and silver was precisely due to this: markets initially expected the new chair to implement a "rate cut + expansion" combo, but Warsh's nomination completely overturned that expectation.

Second: Epstein Files—The "Black Swan" of Political Risk

What unsettled markets even more was the ongoing "Epstein Files" last weekend. Over 3 million pages of documents linked Warsh—his name appeared in guest email lists for the 2010 "St. Barts Christmas Party."

Although there is no current evidence of Warsh engaging in illegal activities, his name being associated with this century's biggest scandal constitutes a huge political liability. In an already controversial economic environment, this event makes the already fragile nomination even more difficult.

Political uncertainty is turning into market risk premiums.

Third: Tariff Policies—The "Damocles Sword" of Trade War

The Trump administration’s tariff policies continue to escalate. According to an executive order signed on February 1, 2025, the US imposed a 10% tariff on Chinese goods citing fentanyl issues, and a 25% tariff on Mexican and Canadian goods (10% on energy products). On February 4, China swiftly retaliated, imposing 15% tariffs on coal and liquefied natural gas, and 10% on crude oil and agricultural machinery.

If a new round of tariffs expands in scope, it will not only hit consumer confidence and corporate profits but could also further inflate the already large fiscal deficit. Forecasts suggest that in the first three months of 2026 alone, the US fiscal deficit will reach $601 billion.

3. Liquidity Black Hole: The Contagion Chain from Commodities to Stocks

The core driver of this storm is forced liquidation of high-leverage positions, triggering liquidity contagion.

The "Death Spiral" in Commodities

The plunge in gold and silver isn’t due to deteriorating fundamentals but a typical liquidity stampede:

1. Overheated Trading: In just one month at the start of 2026, gold surged nearly 30%, silver doubled, RSI soared past 93, and positions hit historic highs.

2. Margin Hikes: CME raised gold futures margin from 6% to 8% on February 2, and silver from 11% to 15%.

3. Forced Liquidation: Highly leveraged longs were liquidated en masse within a short period, with tokenized futures experiencing $140 million in liquidations in 24 hours.

4. Cross-Market Selling: Investors, needing to meet margin calls, sold assets in other markets, causing cross-market risk contagion.

This "mass kill" stampede is an extreme event statistically akin to a "7-sigma" anomaly—comparable to a rare event that might only occur once in a geological era.

Technical Crisis in US Stocks

From a technical analysis perspective, the Nasdaq has been oscillating at high levels for three months, forming an ascending wedge pattern. Now, the key upward trendline has been effectively broken for the second time, severely damaging market confidence.

If tonight’s daily close falls below the previous low, forming a "Lower Low," a larger downward trend could unfold.

Even more dangerous, cracks are appearing in the AI narrative. Recent weakness in the Nasdaq, especially the software sector becoming the most oversold within the S&P 500, indicates market enthusiasm for AI is cooling. Investors are beginning to realize that AI commercialization and profit realization will take much longer than expected.

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4. The Ghost of 1979: Stagflation and Policy Dilemmas

Today’s geopolitical and macroeconomic environment bears a striking resemblance to 1979.

That year, the Soviet invasion of Afghanistan and the Iranian Revolution triggered the second oil crisis, plunging the global economy into stagflation. The Fed at the time failed to act decisively under political pressure, leading to runaway inflation. It was only through Paul Volcker’s "shock therapy"—sharp rate hikes—that inflation was eventually tamed, at the cost of a deep recession.

Today, we face a similar situation:

• Middle East geopolitical tensions: Polymarket data shows a 31% probability that the US will strike Iran by the end of this month.

• Energy price volatility: Crude oil fell 5.51% to $61.62 per barrel, but geopolitical risk premiums are still building.

• Sticky inflation: US December 2025 core PPI exceeded expectations, indicating inflation is embedding into the broader economy.

• Political intervention risks: Potential interference by the Trump administration in Fed independence echoes past policy missteps.

The 10-year US Treasury yield has risen to 4.218%, and the US government’s annual interest payments on debt have surpassed $1 trillion. If history repeats, aggressive tightening measures to control inflation could end this bull market.

5. Water Bei in Shenzhen: Storm Lands in China

This global liquidity crisis has already affected China.

Many gold shops in Shenzhen’s Water Bei have experienced "爆雷" (default or blow-up) due to involvement in unlicensed gold futures betting, with involved amounts possibly reaching hundreds of billions of yuan, affecting thousands of investors. These shops used "agency wealth management" models, promising high fixed returns but actually engaging in high-leverage offshore gold futures betting.

When international gold prices plunged, these leveraged positions were forcibly liquidated, leaving shops unable to pay back clients, leading to defaults. This exposes:

1. Regulatory arbitrage: Some institutions exploit regulatory differences across borders for high-leverage speculation.

2. Lack of investor education: Ordinary investors lack awareness of the risks of futures leverage.

3. Cross-border risk contagion: International market volatility rapidly transmits through informal channels into China.

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6. Outlook: Finding Anchors Amid Uncertainty

Short-term (1-3 months): The market will enter a high-volatility phase. Bitcoin may test the $70,000–75,000 range, and if US stocks form a "Lower Low," it could trigger chain reactions in algorithmic trading. The VIX may further rise.

Medium-term (3-6 months): The key depends on Warsh’s actual policy implementation. If he enacts "hawkish rate cuts," global liquidity will tighten significantly, and risk assets may undergo valuation restructuring. Conversely, if policy stance softens, a rebound window could open.

Long-term (beyond 6 months): Structural factors remain unchanged. Central bank gold buying, de-dollarization trends, and the deep monetary trust crisis with negative real interest rates in the US—all support the long-term bull case for gold. The current plunge is more about speculative bubble bursting than the end of a bull market.

For asset allocators, this may be the moment to reassess the strategy of "gold as a risk hedge." As you previously shared a 30%-40% gold allocation approach, its risk hedging value is now increasingly evident.

Conclusion: Reflections in the Eye of the Storm

From the epic plunge in gold and silver to Bitcoin’s flash crash, and the wobbling US stocks, markets are experiencing a global deleveraging event.

When investors are forced to liquidate high-leverage positions in one market, they sell assets in other markets to raise margin, causing cross-market risk contagion. If liquidity dries up further, the next asset to be sold could be overvalued US stocks.

Warsh’s nomination and Epstein’s exposure are just the last straws breaking the camel’s back. The real question is: after the era of liquidity glut ends, how will markets reprice risk?

The ghost of 1979 is lurking, but history will not simply repeat itself. For investors, staying calm amid the storm and finding anchors in volatility may be the only way to navigate the cycle.

What are your thoughts on this cross-market liquidity crisis? Is it a short-term correction or a sign of systemic risk? Share your views in the comments!

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Disclaimer: This article is for informational purposes only and does not constitute investment advice. Financial markets are highly volatile; please make decisions cautiously according to your risk tolerance.