Why the ECB Is Warning About Gold
- And What It Means for Investors
The Royal Mint
Invest
By
Checked by ,
Updated
In May 2025, the European Central Bank (ECB) released its latest Financial Stability Review, which included an eye-catching warning about the risks in the gold market. The media quickly picked it up, with headlines like ‘Gold Markets Are Cited by ECB as a Risk to Financial Stability’ (Bloomberg, [1]) and ‘Gold Could Trigger the Next Financial Crisis – ECB Sounds the Alarm’ (GuruFocus, [2]).
This article explains what’s behind the headlines, and what this could mean for gold investors.
What did the ECB actually say?
The commentary began by restating something many gold investors already believe, that ‘gold performs well during episodes of stress’. It explains that gold is viewed as a ‘safe-haven’ asset that people turn to during times of financial and geopolitical uncertainty. The ECB even acknowledge that ‘during periods of greater economic policy uncertainty, gold outperforms equities and the US dollar, whereas bond prices generally decrease’.
So far, so normal.
However, it is the second half of the report where things get more interesting. The commentary turns its focus specifically to gold derivatives. Gold derivatives are complex financial products that enable investors to gain exposure to the gold price without physically owning gold. Examples include gold futures contracts, gold options contracts and gold swaps. These are usually accessed by specialist brokers or are only available to institutions and ‘sophisticated investors’.
The ECB state that Euro area exposure to gold derivatives is roughly €1 trillion, and this has increased 58% since the US election in 2024.
One concern is that a significant number of Euro area banks are exposed to non-Euro area counterparties in respect to gold derivatives, and may be exposed to ‘external shocks’. The article notes that ‘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’. It also speculated that ‘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’.
The commentary does not posit a solution or elaborate further on the types of market conditions the ECB believe could lead to such extreme disruption to the financial system, or whether there is a more specific reason they have chosen to highlight it at this time.
In plain terms, the ECB is concerned that if something goes wrong, it could ripple through the financial system, especially if investors are forced to quickly unwind risky positions.
What does this mean for gold investors?
Through this report, the ECB are highlighting the issue of counterparty risk; the risk that arises from relying on other companies and trusting that they won’t fail to meet their contractual obligations.
The ECB’s warning isn’t about gold itself. It’s about the complexity and hidden risks in the way some large institutions are investing in it.
The article didn’t raise any concerns about buying physical gold directly and had little comment about physical gold ETFs.
Buying physical gold is one way some investors seek to minimise counterparty risk. When you buy physical bars and coins, you own the gold directly and you’re not relying on another company/individual to fulfil a contract. However, there may be indirect counterparty risks, for example, a custodian you choose to store your metal could lose or misappropriate your gold.
To reduce any risk, investors may wish to consider the following:
- Know what you’re buying
Are you buying physical gold bars and coins, or something else?
What is the purity of the product(s)?
What is the weight of the product(s)?
Do I get full legal ownership, or is there another arrangement?
- Know who you’re dealing with
Are you buying from or storing with a reputable, well-established dealer?
Do you know who you can contact if there is a problem?
Recent data from The Royal Mint shows that gold remains a popular choice among investors, but as the appeal of gold grows, investors should be increasingly cautious about the potential risks involved. Only dealing with well-established, reputable dealers is one way to reduce risk. Another is to ensure you understand the market and products available. The Royal Mint provides educational content in the form of our Precious Metals Academy, via our Market News and Articles and through our weekly Precious Metals Market Newsletter.
You can read the full ECB report here; https://www.ecb.europa.eu/press/financial-stability-publications/fsr/focus/2025/html/ecb.fsrbox202505_02~7f616fcd3f.en.html
Notes
The content of this article is accurate at the time of publishing, is for general information purposes only, and does not constitute investment, legal, tax or any other advice. Before making any investment or financial decision, you may wish to seek advice from your financial, legal, tax and/or accounting advisers.
This article may include references to third-party sources. We do not endorse or guarantee the accuracy of information from external sources, and readers should verify all information independently and use external sources at their own discretion. We are not responsible for any content or consequences arising from such third-party sources.
Sources
*The information provided is accurate as of 4:30 PM on 28th May 2025.
