The European Central Bank stated that gold markets could become a source of danger for the financial stability of the eurozone in the event of geopolitical stress.
Demand for physical settlements, dominance of large traders, and opaque transactions all together create a larger threat if something goes wrong, wrote four staff economists in an analytical note.
"If extreme events materialize, there may be adverse consequences for financial stability related to gold markets," they wrote. "Vulnerabilities have arisen as commodity markets are typically concentrated among a few large companies, often assume leverage, and have a high degree of opacity resulting from the use of over-the-counter derivatives."
"Margin calls and liquidation of positions using borrowed funds can lead to liquidity stress among market participants, which can spread the shock throughout the financial system," they wrote. "Additionally, disruptions in the physical gold market may increase the risk of contraction."