The ECB is worried about systemic financial system risk from a squeeze in the gold market

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pmbug

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While gold prices are driven by many factors, investors showed high demand for gold as a safe haven asset and, at the beginning of 2025, a notable preference for gold futures contracts to be settled physically. These dynamics hint at investors’ expectations that geopolitical risks and policy uncertainty could remain elevated or even intensify in the foreseeable future. Should extreme events materialise, there could be adverse effects on financial stability arising from gold markets. This could occur even though the aggregate exposure of the euro area financial sector appears limited compared with other asset classes, given that commodity markets exhibit a number of vulnerabilities.[14] Such vulnerabilities have arisen because commodity markets tend to be concentrated among a few large firms, often involve leverage and have a high degree of opacity deriving from the use of OTC derivatives. Margin calls and the unwinding of leveraged positions could lead to liquidity stress among market participants, potentially propagating the shock through the wider financial system. Additionally, disruptions in the physical gold market could increase the risk of a squeeze. In this case, market participants could be subject to significant margin calls and/or have trouble sourcing and transporting appropriate physical gold for delivery in derivatives contracts, leaving themselves exposed to potentially large losses.


You don't say?
 
We might have a few more years.left.in this run. Check back around Thanksgiving to see if there are any deals.

I say eventually everybody will sell their gold jewelry and oddball gold coins and bars which will get.melted into 400 oz bars for central banks and institutions.
 

The professor says that T+60 was almost the LBMA's death knell.

pmbug said:
LBMA stress was caused by COMEX buyers taking physical out of London. FT even reported the T+60 delivery delays which was a klaxon alarm for folks who pay attention to these things. LBMA bullion banks had to borrow gold from the BoE and scrounge metal from wherever they could (redeeming borrowed ETF shares, etc.).

Some questions rolling around in my noggin:
  1. What are/were the loan terms for the BoE gold? Will the bullion banks ever have to pay back the loans with physical gold?
  2. What are/were the loan terms for borrowed ETF shares? Can these loans be cash settled, or will the bullion banks be forced to buy ETF shares at some point to repay the share loans?
  3. Are COMEX buyers currently still taking delivery of London physical gold? I haven't been watching the COMEX gold stock reports so I honestly don't know. IIRC, the COMEX gold inflows slowed down when the tariff exclusion on gold was announced, but I'm not sure if it stopped completely.
  4. Is China stepping up on buying London gold? They had record imports in April. Might have even more in May...

 
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