A recent analysis by the European Central Bank is raising concerns among European gold investors. Is the global gold market in serious trouble?

A new report by the ECB has sparked concerns among gold investors across Europe. Is the global gold market facing instability? ⚠️

The spotlight is on gold derivatives — financial contracts whose value is based on the price of gold, but they don’t involve owning physical gold directly. And now, many are now questioning whether physical gold is the safer choice.

Since November 2024, the market for gold derivatives in the Eurozone has grown by 58%, reaching a total gross exposure of €1 trillion. In its report, the ECB points to potential delivery bottlenecks, counterparty risks, and liquidity issues stemming from leveraged positions.

Up to 48% of these derivatives are traded by banks, raising the risk of systemic threats to the European financial system.

In contrast, many investors see physical gold as a safeguard against financial instability.

Why Is The ECB Raising Concerns?

The European Central Bank recently published its latest Financial Stability Review. The report outlines several scenarios that could threaten the financial stability of the Eurozone.

One section has caught the attention of gold investors: the ECB warns that the gold market may be headed for serious disruptions.

But why? And what do gold derivatives have to do with it?

What Are Gold Derivatives – And Why Are They Under Scrutiny?

Investors have many ways to gain exposure to gold. In addition to physical investment gold — which you can buy from trusted providers like GOLD AVENUE — there are gold mining stocks, ETFs, ETCs, futures, and certificates.

However, most of these fall into the category of gold derivatives.

Gold derivatives are financial instruments whose value is linked to gold, but that don’t involve direct ownership of the physical metal. Their main advantage? Investors can benefit from gold price movements without the need to store or handle physical bullion.

Many derivatives are backed by the underlying asset, meaning investors could theoretically receive delivery of the physical gold at a future date. That’s the case with many gold futures traded on the COMEX in New York — essentially contracts to buy or sell gold at a predetermined price in the future.

Historically, most investors haven’t taken delivery. Instead, they’ve traded contracts to profit from price fluctuations.

But that’s changing: in recent months, the gold futures market has grown by 58%, hitting €1 trillion in gross volume — and more traders are now demanding physical delivery to COMEX-approved vaults in the U.S.

And here lies the problem, according to the ECB.

Futures are often traded like bets on price movements — but when delivery is actually requested in large volumes, it can reveal cracks in the system.

Signs of Strain In The Derivatives Market

Investors have many ways to gain exposure to gold. In addition to physical investment gold — which you can buy from trusted providers like GOLD AVENUE — there are gold mining stocks, ETFs, ETCs, futures, and certificates.

However, most of these fall into the category of gold derivatives.

Gold derivatives are financial instruments whose value is linked to gold, but that don’t involve direct ownership of the physical metal. Their main advantage? Investors can benefit from gold price movements without the need to store or handle physical bullion.

Many derivatives are backed by the underlying asset, meaning investors could theoretically receive delivery of the physical gold at a future date. That’s the case with many gold futures traded on the COMEX in New York — essentially contracts to buy or sell gold at a predetermined price in the future.

Historically, most investors haven’t taken delivery. Instead, they’ve traded contracts to profit from price fluctuations.

But that’s changing: in recent months, the gold futures market has grown by 58%, hitting €1 trillion in gross volume — and more traders are now demanding physical delivery to COMEX-approved vaults in the U.S.

And here lies the problem, according to the ECB.

Futures are often traded like bets on price movements — but when delivery is actually requested in large volumes, it can reveal cracks in the system.

Signs of Strain In The Derivatives Market

The chart above shows how in recent years, the price gap between physical investment gold (LBMA in London) and gold futures (COMEX in New York) has widened far beyond historical norms.

In 2017, the premium was around $3.84 per ounce. But by December 2024, it had spiked to $60–$80 per ounce — nearly 20x higher.

That means investors were willing to pay steep premiums to trade futures, signaling rising stress in the market.

According to the ECB, this trend is concerning for several reasons:

• Delivery Risk: The rapid growth of the futures market could result in delays or failures to deliver physical gold — especially as more participants request it.
• Bank Exposure: Up to 48% of these positions are held by banks, increasing the risk of systemic issues spreading to the broader financial system.
• Counterparty Risk: Many deals are made over the counter with foreign counterparties. The opaque nature of these transactions could lead to defaults.
• Leverage Risks: In a highly volatile market, forced liquidation of leveraged positions could cause liquidity crunches that ripple across the system.

Why Physical Gold Could Be The Safer Option

As mentioned, derivatives are essentially bets on price movement. This can be both a benefit and a drawback.

On the plus side, investors can profit from price swings without needing to physically store the commodity (you wouldn’t want a barrel of crude oil in your garage!).

But there’s a key risk: counterparty failure. Even if the contract stipulates delivery, there's no absolute guarantee — especially in the case of a counterparty going bankrupt or markets freezing.

Physical investment gold, on the other hand, carries no counterparty risk. You own the asset outright, and no one can default on delivering it.

Plus, gold’s naturally limited supply gives it intrinsic value — it can’t be printed, inflated, or easily replaced.

Buy Physical Gold With GOLD AVENUE

GOLD AVENUE is the official European online retailer of the MKS PAMP GROUP, a global leader in the precious metals industry.

We offer a wide selection of physical gold with the highest purity (up to 999.9) from LBMA-certified producers.

You can store your gold securely in high-security Swiss vaults, outside the banking system — free of charge for holdings up to €10,000.

We also offer commission-free buyback at real-time market prices whenever you're ready to sell. To explore our wide range of gold coins, bars and more, visit the GOLD AVENUE website.