Systemic stress in gold derivatives

Last month, the ECB warned of increasing counterparty risk in gold derivatives for the euro area. It has very good reason to be concerned.

Systemic stress in gold derivatives

Last month, the ECB warned of increasing counterparty risk in gold derivatives for the euro area. It has very good reason to be concerned.

Since dealers on Comex took fright at the prospects of President Trump imposing tariffs on gold and silver imports, the flood of physical gold into Comex has never been properly explained in terms of systemic risk. This article addresses this specific issue, and why it has led the ECB to conclude that gross notional exposure of gold derivatives to euro area banks and financial institutions increased by 58% between November and March.

In the May edition of its Financial Stability Review, The ECB added that a significant share of these deerivatives was over the counter and not centrally cleared, leaving actors exposed to counterparty risk.

For the first time, we see a major central bank pointing out what my Substack readers will already know; and that is banks on Comex have physical delivery obligations, which is why massive quantities of gold migrated from Europe to New York. This is what the ECB said: