Standard Charter: Gold Sold To Cover Biggest Margin Calls Since Covid

via FT.

Hedge funds hit with steepest margin calls since 2020 Covid crisis

According to Suki Cooper, precious metals strategist at Standard Chartered, the drop in gold may have been driven by hedge funds selling safe-haven assets to “meet margin calls.”

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Margin Pressure Returns: Hedge Funds Face Biggest Collateral Calls Since 2020

The FT reported yesterday that: the re-emergence of tariffs under former President Donald Trump has produced the most severe round of hedge fund margin calls since the early stages of the COVID-19 crisis. The magnitude of forced de-risking reflects both the breadth and violence of cross-asset repricing in response to escalating trade tensions.

According to three individuals familiar with internal discussions, several major Wall Street banks issued substantial margin calls to their hedge fund clients late this week, citing sharp declines in the value of pledged collateral. In many cases, the capital requested represents the largest collateral top-ups demanded since global markets seized in March 2020.

The timing was no coincidence. Trump’s announcement of sweeping new tariffs—quickly met with retaliatory measures from China—set off a synchronized correction across risk assets. The S&P 500 was on track for its worst weekly performance in over four years. Oil, leveraged credit, and even traditionally defensive assets like gold sold off, indicating systemic stress across asset classes.

One senior executive at a prime brokerage desk described the episode as “reminiscent of early COVID,” noting that the trigger was not the severity of the selloff in any one asset class, but the simultaneity of declines across rates, equities, and commodities.

Banks responded swiftly. Teams at multiple prime brokerage desks arrived early on Friday, conducting “all hands” meetings to assess exposures and prepare for a wave of client margin shortfalls. “We are proactively engaging clients to understand their risk across portfolios,” one U.S. bank representative noted.

Data from Morgan Stanley’s prime brokerage division confirmed the dislocation. U.S.-based long/short equity hedge funds posted their worst daily performance since the bank began tracking results in 2016. On Thursday alone, the average fund fell 2.6%, with aggregate equity selling activity matching the scale of liquidations seen during the March 2023 regional banking crisis and the initial pandemic panic of 2020.

The selling was broad-based but concentrated in sectors that had previously led the market: megacap technology, AI-linked software and semiconductors, high-end consumer names, and investment banks. According to Morgan Stanley’s report, net leverage across U.S. long/short funds fell to approximately 42%—an 18-month low—as managers sold into weakness and de-risked.

Notably, the deleveraging wave may have been even more severe had many funds not already been trimming positions and reducing gross exposures in anticipation of policy volatility. Over recent weeks, the threat of a major tariff escalation had prompted some managers to reduce exposure proactively, softening the impact of this week’s rout.

Still, the financial strain reached beyond equities. Gold, often a beneficiary of geopolitical turmoil, fell 2.9% on Friday—an anomalous move that highlights the liquidity demands across portfolios. According to Suki Cooper, precious metals strategist at Standard Chartered, the drop in gold may have been driven by hedge funds selling safe-haven assets to “meet margin calls.”