The European Central Bank (ECB) has highlighted potential risks that gold markets may pose to the eurozone’s financial stability during periods of geopolitical stress.
In a note published Monday by four ECB staff economists—Maurizio Michael Habib, Oscar Schwartz Blicke, Emilio Siciliano, and Jonas Wendelborn—the risks stem from the demand for physical gold settlement, the dominance of a few large traders, and the opacity of transactions. The analysis will be part of a broader risk report scheduled for release on Wednesday.
“Should extreme events materialize, there could be adverse effects on financial stability arising from gold markets,” the economists stated. They pointed to vulnerabilities related to the concentrated nature of commodity trading, extensive use of leverage, and the high opacity stemming from over-the-counter (OTC) derivatives.
Gold prices surged above $3,500 an ounce last month following U.S. President Donald Trump’s imposition of global tariffs. Although prices have since retreated, experiencing their largest weekly decline since November last week, the ECB team warns that underlying concerns persist.
“Margin calls and the unwinding of leveraged positions could lead to liquidity stress among market participants, potentially spreading shocks through the broader financial system,” they explained. They also noted that disruptions in the physical gold market could increase the risk of a squeeze.
Earlier this year, U.S. demand for physical gold amid tariff fears created logistical bottlenecks at the Bank of England’s vaults and contributed to a surge in Switzerland’s trade surplus with the U.S., due to the need to refine and recast bullion moving from London to New York.
Looking ahead, delivery challenges could exacerbate market stress. The ECB economists warned that participants might face significant margin calls or difficulties sourcing and transporting physical gold to fulfill derivatives contracts, potentially resulting in substantial losses.
