MW How a single tech heavyweight managed to pull the rug on gold and global markets
By Barbara Kollmeyer
Joachim Klement sees a worrying link between popular assets and one bad event
The precious metals selloff has cooled, but investors may be overstretched in assets like those that have become trendy.
That dramatic selloff in the metals space seems to have paused for now, with hard-hit gold and silver firmly in the green early Tuesday.
Note, JPMorgan and others have been pushing back at this retreat, defending solid fundamentals for gold, as they see "real assets" like commodities and real estate continuing to trounce stocks, bonds and cash.
"The clear-out in short-term speculative positions creates some breathing room. Meanwhile, lower price levels allow long-term investors who still hold low to zero gold allocations to build positions," UBS strategist Joni Teves told clients on Monday.
But could the wild trading in metals be a sign of something deeper going on?
That brings us to our call of the day from Panmure Gordon's head of strategy, Joachim Klement, who warns of possible international contagion for markets from overstretched investors backed into a corner.
Klement starts with last week's Microsoft $(MSFT)$ results, which he notes triggered a plunge for the stock in the first hour of trading on Thursday, driven by worries over the tech giant's high capex spending.
"During that hour, gold prices dropped 7.7% and bitcoin dropped 4%. It wasn't just the U.S. tech sector that sold off in sympathy with Microsoft, but assets that are seemingly uncorrelated to them," he explained. "Indeed, since then, the selloff in Microsoft shares has turned into a complete meltdown of precious metals and associated miners."
While the metals selloff has cooled a bit, Klement worries that some investors are in over their heads.
His chart, below, shows all-time lows for cash balances in U.S. margin accounts relative to margin debt.
"To us, this contagion effect is driven by overstretched investors who, in some cases, use margin debt to invest in the trendy assets of the day," he said, adding that they believe that's particularly the case for metals.
"Hence, if assets bought on margin drop, it takes very little before investors have to raise additional cash to cover the margin calls," he said. Margin debt refers to the money investors borrow from brokers to buy stocks and other assets. If the value of that account dips below a certain threshold, a broker will make a "margin call" ordering clients to add funds to that account.
"When that happens, investors will sell anything that is liquid, and the selloff spreads to other, seemingly unrelated assets," he said, noting that the FTSE 100 UK:UKX dropped about 0.9% in that hour, with the Stoxx Europe 600 XX:SXXP losing 1%. "This tells us that (i) the AI boom is becoming increasingly fragile, and (ii) when it ends, our stock markets are also at risk. There will be no place to hide."
Klement told MarketWatch in answers to follow-up questions that he sees AI stocks, gold, silver, precious metals miners and cryptocurrencies as the most crowded trades right now.
Another question for him: Over history, how long have such mechanical margin-call selloffs lasted, and do those assets tend to rebound whether overleveraged traders finally get wiped out?
"There is no clear rule because it depends whether fundamental news changes the underlying narrative in the assets leveraged investors hold," he responded, saying that in case of Microsoft, that didn't spread to other hyperscalers nor change the narrative around AI.
"Hence, I think in this case, it is going to be contained relatively quickly and metals, as well as Microsoft shares, can bounce," he said. But last week's episode shows that "one botched earnings call from an AI heavyweight or one change in narrative about the dollar debasement trade can unravel the entire edifice. Current all time highs in U.S. stock markets and precious metals are built on very flimsy foundations."
Klement's advice? "I think we are in a market consolidation from overbought conditions, but not in a correction or even a bear market. As such, I wouldn't sell stocks just yet, but look to diversify holdings into markets that are better supported by fundamentals and valuation like U.K. and European stocks."
The markets
U.S. stock futures (ES00) (YM00) (NQ00) indicate a possible fresh record for the S&P 500 and tech gains. Gold (GC00) and silver (SI00) continue to rebound, along with copper (HG00) and other base metals.
Key asset performance Last 5d 1m YTD 1y S&P 500 6976.44 0.38% 1.08% 1.91% 16.38% Nasdaq Composite 23,592.11 -0.04% 0.84% 1.51% 21.66% 10-year Treasury 4.29 4.00 12.10 11.80 -22.00 Gold 4946.4 -1.17% 10.91% 14.18% 73.52% Oil 61.99 1.91% 6.26% 7.98% -14.30% Data: MarketWatch. Treasury yields change expressed in basis points
The buzz
OpenAI reportedly has concerns about Nvidia (NVDA) chip quality, just after CEO Jensen Huang walked back plans to invest in the large language model creator.
Teradyne shares $(TER)$ are soaring after an AI-fueled blowout earnings forecast for the company that makes testing equipment for chips and circuits.
Palantir stock (PLTR) is climbing after the data analytics group beat revenue and earnings expectations.
PepsiCo $(PEP)$, Pfizer $(PFE)$ and PayPal (PYPL) are reporting results. After the bell, Advanced Micro Devices $(AMD)$ and Chipotle $(CMG)$ earnings are due.
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February 03, 2026 07:00 ET (12:00 GMT)
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