Eph 6:12 For we wrestle not against flesh and blood, but against principalities, against powers, against the rulers of the darkness of this world, against spiritual wickedness in high places. Verse 13 Wherefore take unto you the whole armour of God, that ye may be able to withstand in the evil day, and having done all, to stand.
Tuesday, September 6, 2016
Watchman Warning About "Paper Gold" Comes True
Tyler Durden wrote another terrific article.
A troubling report emerged in aGerman gold analysis website,
according to which Deutsche
Bank was unable to satisfy a gold delivery request when asked to do so by a
client of Germany's Xetra-Gold service.
But first, what is Xetra-Gold?
Accordingto its website,
the publicly traded company "provides investors with an efficient
instrument to participate in the performance of the gold market. Xetra-Gold’s
combination of features – cost-efficient tradingand the right for physical
delivery of gold- makes it an
mark-up fee, no transportation or insurance costssuch as those incurred when
purchasing physical gold. Only the standard transaction fees
that are charged for on-exchange securities trading are payable at the time of
acquisition. The spreads that apply to purchase and sale correspond to the standard
conditions on the global market and are considerably lower than those for
traditional gold-based financial products. Furthermore, management or
administration fees relating to Xetra-Gold are not incurred.The investor pays the amount of
custody fees which he/she has agreed upon with the depository bank.
issuer uses the proceeds from the issue of Xetra-Gold to purchase gold.The physical gold is held in
custody for the issuer in the Frankfurt vaults of Clearstream Banking AG, a
wholly-owned subsidiary of Deutsche Börse AG.In order to facilitate the
delivery of physical gold, the issuer holds a further limited amount of gold on
an unallocated weight account with Umicore AG & Co. KG.
tracks the price of gold on a virtually 1:1 basis,and is always up to date.
Tradeable in euros per gram:While in the past, gold was mainly denominated
in US dollars per troy ounce, you trade Xetra-Gold in euros per gram.
investor’s right to receive delivery of the certificated amount of gold is not
reduced by management costs or other fees, unlike other investments in gold.
1,000 units of Xetra-Gold will still represent a kilogram of gold in 30 years'
The company makes the following
for gold:Investorsalways have the possibility of demanding delivery of the
securitised amount of gold per bearer note against the issuer.If the investor is not able to
exercise this right due to legal restrictions effective for him/her, he/she can
demand the cashing of Xetra-Gold from the issuer. In this case, a settlement
fee of EUR 0.02 per Xetra-Gold bond will be charged.
of gold:If an
investor asserts his/her right to the delivery of the certificated volume of
gold from the issuer, the gold will be transported to the respective point of
delivery by Umicore AG & Co. KG, which is responsible for all physical
issuer will also have delivery rights of gold from Umicore AG & Co. KG, as
the gold leaf debtor. Investors can find information on
delivery and the alternative payment claims that are relevant for investment
and insurance companies in the PDF document entitled 'Information on the
process for exercising Xetra-Gold'.
And yes, Deutsche Bank is involved,as the fund's Designated
words, Xetra-Gold is an Exchange-Traded Commodity which differentiates itself
by "representing that every gram of gold purchase electronically is backed
by the same amount of physical gold" and its principal bank is none other
than Deutsche Bank.
with Germans recentlyrushing to buy safesor find sound money
alternatives in a country where the interest rate is negative, the ETC, it is
not surprising that the German
population has flocked to its offering.
According to recent report by
LeapRate, the gold held in custody by Deutsche Borse Commodities for
the purpose of physically backing the Xetra-Gold bondhas risen to a new record high
of 90.67 tons, an increase of more than 50% since the beginning of the year."For
each Xetra-Gold bond, exactly one gram of gold is deposited in the central
vaults for German securities in Frankfurt" the report parrots the
Among all exchange-traded commodities (ETCs)
tradable on Xetra, Xetra-Gold is by far the most successful in terms of
turnover. During the first
seven months of the year, order book turnover on Xetra stood at approximately
€1.5 billion. The assets managed by Xetra-Gold currently amount to €3.5
In September 2015, the German Federal Fiscal
Court (Bundesfinanzhof) had ruled that after a minimum holding period, any profits from the sale or
redemption of Xetra-Gold are not subject to the capital gains tax. From
a fiscal point of view, the purchase, redemption or sale are thus to be treated
equal to a direct purchase or sale of physical gold, such as in bullions or
what is most notable, is that, as noted above, Xetra-Gold investors are
entitled to the delivery of the certified amount of physical gold at any time,
and adds that "since the introduction of
Xetra-Gold in 2007, investors have exercised this right 900 times, with a total
of 4.5 tons of gold delivered."
However, something appears to have changed.
AsOliver Baron reports,
those who ask for gold delivery at this moment, "could encounter difficulties."
The reason is that according to Baron, a reader of GodmodeTrader "sought
physical delivery of his holdings of Xetra-Gold. For this he approached, as
instructed bythe German Borse document,
his principal bank, Deutsche Bank."
point then he encountered a big surprise: the Deutsche Bank account executive
informed the investor that "the service", is no longer offered,
namely exercising physical delivery at Xetra-Gold, for "reasons of
business policy" and therefore the order form provided by Clearstream
Banking AG for exercising Xetra-gold is no longer available.
writes that since Deutsche Bank is no longer serving the physical exercising of
delivery request of Xetra-Gold is remarkable, as Deutsche Bank is the
"designated sponsor" as well as fiscal, principal and redemption
agent of Xetra-Goldaccording to its prospectus,
and as the explainer of how toexercise physical delivery also
reveals. Even if one is a customer of another bank, Xetra-Gold
should - at least on paper- guarantee delivery by way of Deutsche Bank, as the
Deutsche Borse Commodities GmbH explains in its "process description for exercising
Step-by-step description of exercise
Together with a representative of his principal
bank, the investor creates the transaction and sends it to the principal bank's
custodian with the relevant process data described above. The
custodian in turn instructs its custodian, stipulating all process-relevant
data, until a bank which is a customer of Clearstream Banking is authorised.
The customer may use the attached exercise
form to instruct the designated sponsor (here Deutsche Bank AG, Frankfurt) to
deliver a specified number of gold bars to the point of delivery.The process is similar to that for the delivery
of physical certificates.
The customer should send the original exercise
form to the following address:
Deutsche Bank AG
"Ausübung Xetra-Gold" CIB-Global Banking
Trust & Securities Services
Grosse Gallusstrasse 10 – 14
60311 Frankfurt am Main
To transfer the required amount of Xetra-Gold
units to the blocked account of Deutsche Börse Commodities, the customer should
also place an FoP instruction via CASCADE or File Transfer/SWIFT.
Delivery will be initiated if Deutsche Bank
receives the securities and the application form by 10:00 CET.As
a rule it takes one to two weeks to deliver retail gold bars and four days for
London Good Delivery gold bars from date of ordering. As soon as the delivered
gold arrives at the point of delivery, the Xetra-Gold® units are removed and
recovered from the "Ausübungskonto DBCo" (DBCo exercise account).
Due to the provisions of the Money Laundering
Act (Geldwäschegesetz) only the branch of a bank may be used as point of
delivery.Investors expecting a large delivery of gold
should contact their principal bank to discuss the transfer of the gold to the
point of delivery.
article goes on to note that it was not clear whether the exercise and physical
delivery at other banks is actually still possible. Baron said that Deutsche Borse
Commoditiesadvised to transfer the
Xetra-Gold shares in a cooperative/Raiffeisenbank since physical delivery is
allegedly still possible here.The Deutsche Borse also announced that it
is currently working on the "possibility of delivery regardless of bank
branch." However, since this process was not described in the prospectus
of Xetra-Gold, it would have to be legally tested, which could take considerable
The article's conclusion: anyone who
wants to easily convert their Xetra-Gold holdings into physical gold -at least for clients of
Deutsche Bank- can do so only by
selling their shares, and then buying gold coins or bars directly elsewhere.
Which leads the author to the logical question: what is the worth of the
Xetra-Gold service,which certifies the right to
redeem physical gold, if said delivery is no longer possible?
other words, what was supposedly an ETC which promised physical deliveryupon
demand, is nothing more than yet another "paper only" play.
We, on the other hand, have a more focused
question: is the inability to
deliver physical gold an incipient issue with Xetra-Gold, or with the company's
"designated sponor" Deutsche Bank, and if the latter is suddenly
unable to satisfy even the smallest of delivery requests by retail clients,
just how unprecedented is the global physical gold shortage? Watchman
comment: it sounds to me like Deutsche Bank (DB) is in huge trouble. DB's troubles are far larger than Lehman Brothers.