Overview

• The ECB warned that a sudden plunge in gold prices may prompt hefty margin calls and trigger liquidity gaps with systemic spillovers to the global financial system.
• Heightened demand for physical delivery has created supply bottlenecks and driven price divergences of up to $50 per ounce between London’s spot market and Chicago’s futures exchange.
• Europe’s gold market is dominated by roughly $1 trillion in over-the-counter derivatives contracts, far outweighing the scale of physical bullion and ETF holdings.
• Banks exposed to gold derivatives face solvency pressure if they cannot furnish physical metal as contracted, raising the possibility of institutional failures.
• ECB analysts urged tighter transparency requirements and regulatory oversight to curb risks in the gold derivatives sector and guard against abrupt market shocks.