Counterparty risk is the possibility that the other party in a financial arrangement fails to fulfill their obligation — whether through default, bankruptcy, fraud, or government action.
Examples of Counterparty Risk
- A bank holding your deposit goes bankrupt (Lehman Brothers, 2008)
- A company whose stock you own commits fraud (Enron, WorldCom)
- A government freezes bank accounts or imposes capital controls
- An ETF custodian fails to maintain adequate gold backing
Physical Precious Metals: Zero Counterparty Risk
When you hold physical gold or silver — either in your possession or in a segregated vault — no third party can default on your asset. The metal simply exists, independent of any institution. This is the foundational argument for physical precious metals ownership: in a world of interconnected financial risk, physical metal stands apart.