Morning Bid: Metals get a lot less precious as positions squeezed

A look at the day ahead ⁠in European and ⁠global markets ‍from Wayne Cole

Someone shouting fire in a crowded theatre is what's happening in the metals market. Everybody and their mum was piling into gold and silver - retail ‍investors and leveraged funds, algos, CTAs and momentum plays. So when silver falls 30% ​in one session, it's everyone for the exits.

The CME has reacted by raising margins on several metals contracts by between ​2 and 4 percentage points, suggesting some investors are having trouble meeting margin calls.

Dealers also say Chinese investors in popular silver futures funds were having trouble liquidating positions, with selling spilling over into other markets. Momentum is ​a powerful force, but it works in both directions.

Silver was down, up, and now down again by around 8% at $78.50 an ounce. It was still just above Friday's trough of $73.70, though ​that may not be true by the end of this sentence, so volatile is trading.

That has made for a risk-off tone in equities ‌where all of Asia is in the red. Even the Nikkei could not sustain early gains made when opinion polls pointed to a majority win ​by the LDP in upcoming lower house elections.

It was notable ⁠that neither gold nor Treasuries picked up a safe-haven bid amid the losses, suggesting investor confidence in U.S. assets is less than sound.

The rout in ‌gold is pressuring other "bubbly" markets, led by South Korean stocks with a drop of 5.5%. Wall Street futures are off 1.2% or so, and European futures between 0.6% and 1%.

This means corporate earnings will have to be all ‌the better to justify stretched valuations. About one quarter of the S&P 500 is reporting this week, along with ‌around 30% of Euro STOXX market capitalisation. So far, S&P 500 EPS growth is running at 11% y/y against consensus forecasts for +7%.

Obviously, all eyes will be on tech majors Alphabet, Amazon and AMD, particularly for the costs ‍and benefits of AI in the wake of Microsoft's badly received results.

Analysts at Goldman Sachs noted consensus estimates for AI hyperscalers' capex this year had ⁠climbed to $561 billion, up 38% on 2025 and compared to $540 billion expected at the start of earnings season.

Key developments that could influence markets on Monday:

- Data include global PMIs, U.S. ISM survey for January

- Speeches by BoE Deputy Governor Sarah Breeden, Executive Director Rebecca Jackson

- Appearance by Fed Bank of Atlanta President Raphael Bostic

(By Wayne Cole; Editing by Sonali Paul)

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