➡ The article talks about the recent success of First Majestic, a company that has achieved record earnings and returned to profitability after acquiring Gato Silver. The author also mentions an upcoming event, the Rick Rule Symposium, where he plans to meet with Keith Neumeier, a key figure at First Majestic. The author encourages readers to check out more details about First Majestic and the symposium through links provided in the article.

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 and derivatives contracts, leaving themselves exposed to potentially large losses. And the stuff is also quite heavy, as you know. Well, hello there, my friends. Chris Marcus here with you for Arcadia Economics just afternoon on Tuesday, May 20th.

Wow, five months into the year already. And quite an exciting year it has been in gold and silver, where today we will touch on a rather intriguing warning in the gold market from the European Central Bank, no less. So not just the gold and silver bugs saying it anymore, but we’ll get to that. Although a quick look at the gold and silver pricing before we start, where we can see on a Tuesday, gold futures up another $50 back up to $32.83. And really has been stunning how we see some of these sell-offs.

Gold goes down 100 bucks plus two or three days in a row. And yet here we are 16 bucks away from $3300. So good day on the gold side and also on silver, where the futures are up another 50 cents back over $33.02. Still a bit away from the highs of the year, which were $35.49. It’s about a geez, that was almost two months ago now. So anyway, $33 silver again today. And the dollar index off of its lows was below 98 at one point now back just over par. And gold and silver is still doing quite well.

So with that said, let us jump into the main entertainment for today’s show, because here we have from the European Central Bank. This was prepared by four of their authors and you can see their names over here to the right and can click on their links to get their bios and find out which of the finest central banking schools they attended. Maybe the Davos form, but we’ll skip that for now and note that they start off with gold prices. I’ve seen an unprecedented surge since 2023. I’m guessing if you’re watching today, you’ve heard about that before, reaching a series of all time highs.

Then they talk about how it’s a store of value, unlike bonds and equities not provided cashflow and a portfolio diversifier. We’ll skip over that part, heard all of that before. Similar here, gold generally offers a safe haven in times of stress, particularly during episodes of high geopolitical risk or policy uncertainty. Sounds like what we’re living through now. So certainly we have seen the gold price rise through that. And here’s an interesting note. Finally, in extreme cases when investors face elevated geopolitical risks, stock market volatility and policy uncertainty at the same time, such as during the 9-11 terror attacks, the onset of COVID, when it remembers that well, or the Russian invasion of Ukraine, gold prices tend to rise alongside the value of the dollar.

Overall, this confirms that gold is a safe haven during times of stress. That is something we’ve seen where traditionally it was gold up, dollar down, or vice versa. We’ve seen that correlation break along with the long held correlation between the 10 year yield and the gold price, which has diverged ever since 2022. And I might add now we’re in the midst of whatever happened a couple weeks ago in, forget where they were actually meeting, but basically Trump talked about additional banking sanctions on Russia and seems like the tone has changed there. Obviously we have the terror wars going on.

So elevated geopolitical or policy uncertainty, we’re, we’re living it. Welcome to vesting in 2025. Then, but the action starts picking up here because the recent developments in gold futures markets, such as comics, particularly in the futures contracts with physical delivery confirmed the close correlation between elevated policy uncertainty and the price of gold. So here we see that 58% of asset managers would expect gold to be the best performing asset class in a full blown trade war scenario, which I still think we’re in truce or not with China. It’s not going well at the moment.

And against this backdrop, come on, COMEX vault saw significant increases in gold inventories, while the number of gold futures contracts noticed for delivery has been historically high in 2025. The preference shown by COMEX participants towards acquiring physical gold through the futures market indicates that investors are favoring long positions in physical gold over non physically settled contracts. Here he mentions trade policy uncertainty and increased demand for gold has led to higher gold borrowing costs and gold futures prices. Talk about how prior to the resolution of the uncertainty around the tariffs and exempting gold and silver, the metal that has come from London into New York, and how as a result, the cost of borrowing and sourcing gold in the London market increase sudden market stress and disruptions to sourcing, shipping, and delivering gold in derivatives contracts raise the question of whether contour parties obliged to deliver physical gold could be at the risk of incurring increased margin calls and suffering losses.

This has been seen in other non-energy commodity markets in the past. And then we get to now it’s looking over in the euro zone where investors are exposed to gold through derivatives pointing to large foreign counterparty exposure in the euro area, gross notional exposures to gold derivatives amounted to 1 trillion euros in March 2025, increase of 58% since 2024. So you see the derivatives are getting piled on, 48% of the derivatives have a bank counterparty, and the majority of the euro area banks’ gold derivative exposures are with non-euro area domiciled counter parties suggesting some exposure to external shocks in the gold market.

And then here they mention how what’s actually in the billion was rather small compared to counterparties, total financial assets, and those were predominantly held by households and investment funds. But fortunately, here is the best part saved for last. Gold markets appear to partly reflect elevated geopolitical risk and substantial economic policy uncertainty with tail scenarios potentially having adverse effects on financial stability. Well, that’s more talk about tail scenarios, rightfully so in my opinion, because look at what’s happening. I think we’re in one. Goldman talked about their $4,500 gold forecast in extreme tail scenarios.

And now we’ll hear what the ECB has to say about this one. And if you’re a gold and silver investor who doesn’t like the way things are set on the COMEX, then you’re in for some good news today because 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, 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 materialize, 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. Yet such vulnerabilities have arisen because commodity markets tend to be concentrated among a few large firms. Certainly we’ve been hearing about that and looked at the COT report, have seen that with the large positions by the top four or eight banks. And these large concentrated positions at a few firms often involve leverage and a high degree of opacity deriving from the use of OTC derivatives.

Margin calls and the unwinding of leverage 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 and derivatives contracts, leaving themselves exposed to potentially large losses. Now you’re hearing it from the ECB. We’ve talked about it here for years and we talked about, I think it was CIBC and HSBC that reported the large losses back in 2020.

We talked about how there were delays getting gold from the Bank of England and how the tariffs didn’t fully explain that. On the substack, we’ve talked about Robert Gottlieb saying swap dealer’s positions for the CFTC are extremely alarming. Someone may be taking a huge position and be very exposed. And of course, we also talked about the Bank’s short positions. We set a record last year on the gold side for the most short they’ve ever been, broken only by the new record set this year for most short banks have ever been while on silver.

Talked plenty about how they’ve gotten very close, been in second place territory to the all-time shortest that the banks have collectively been, which was back in July of 2016. And now you’re hearing the same exact thing from the European Central Bank as the volatility has picked up, as we’re in the midst of the extreme tell scenario and as the prices are already elevated. So in either case, I’ll leave the link to this baby down in the description field below. Feel free to read through it. And then if you’re feeling upset that I didn’t click on Maurizio and all right, here we go.

International policy analysis team lead economist. There you can find out all about the folks that contributed to this fine report. And before we wrap up, would just like to thank first majestic. And you can find out about what they are doing over at first majestic.com, where they did recently release their earnings for the first quarter that came back with record quarterly revenue, record mine operating earnings, record cashflow from operations, and also saw the company return to profitability following their deal to acquire gato silver. And the link to that one is also in the description field below.

So to find out the latest about first majestic, you can just go click there. And actually, I’ll be catching up with Keith Neumeier in about a month and a half at the Rick Rule Symposium down in Boca Raton. So if anyone is planning on attending that, would love to say hello there. We may set up a happy hour the night before the Sunday night. So I will be there. And I’ll look forward to seeing Keith there. And we’ll check in with him, especially as probably won’t have second quarter earnings at by the time the symposium is there, but even more so helpful to hear from Keith.

And anyway, we’re gonna wrap up for today, but hope you’re having a great afternoon out there. Sure. Appreciate you spending part of your day here with us at Arcadia. And we will see you again tomorrow. And the stuff is also quite heavy as you know. So
[tr:trw].

See more of Arcadia Economics on their Public Channel and the MPN Arcadia Economics channel.