Recently, the market trends for gold and silver have indeed been worth paying attention to. In the next two weeks starting from tomorrow, these two assets may experience a significant wave of volatility, especially silver.

The fundamental reason is that the Bloomberg Commodity Index(BOCM) is about to initiate its annual rebalancing, with the time window from January 9 to 15. Let me first explain the operational logic of this index.

This index is very popular in the global commodity market, covering six major categories: energy, industrial metals, precious metals, grains, livestock, and soft commodities. How are the weights allocated? No single commodity can exceed 15% of the total. The rebalancing occurs once a year. The weight calculation method combines two-thirds of trading liquidity and one-third of global production value, with a mixed weighting approach.

This creates a problem. Over the past two years, gold and silver prices have surged significantly. Currently, gold accounts for 20.4%, and silver for 9.6%, both exceeding the upper limit. After rebalancing, gold needs to be reduced to 14.9%, and silver even more drastically, down to 3.94%.

What does these numbers represent? Silver may face $7.7 billion in selling pressure over the next two weeks, while gold could face $6 to $7 billion. The calculation for this selling volume is: tracking the total fund size multiplied by ( current weight minus target weight ). Different investment banks may have slightly different figures, but Bloomberg’s tracked fund size is roughly in the range of $600 billion to $1 trillion.

Why are they selling? Essentially, it’s due to the passive nature of index tracking. When weights are adjusted, the funds tracking this index must also rebalance accordingly. Those with small allocations in WTI crude oil and other energy assets will be passively increased, while gold and silver holdings will be decreased. Who will take over these selling orders? It depends on market participants.

Regarding price trends, in the next two weeks, gold and silver are likely to experience a noticeable correction driven by this rebalancing process. Coupled with other market sentiment factors, the volatility could be even greater.