In the latest stunning development involving a documented failure of a bank to deliver physical gold when demanded, yesterday we reported that according to German website godmode-trader.de, a client of the Xetra-Gold Exchange-Traded Commodity was told the fund’s designated sponsor, Deutsche Bank, would be unable to deliver the requested gold. This was contrary to the explict reps and warrantiesmade explicitly in the Xetra-Gold’s prospectus, which said that investors are entitled to the delivery of the certified amount of physical gold at any time, and proudly added 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.”
As the German article concluded: 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? In other words, what was supposedly an ETC which promised physical delivery upon demand, is nothing more than yet another “paper only” play.
We asked another, more nuanced question: is the inability to deliver physical gold an issue with Xetra-Gold, or with the company’s “designated sponsor“, Deutsche Bank, and if the latter is suddenly unable to satisfy even the smallest of delivery requests by retail clients, just how pervasive is the global physical gold shortage?
Our report has stirred a significant response, both at Deutsche Bank, and at Xetra-Gold, which today filed an official response, one which can be read in German on the following page.
What is notable is that instead of immediately refuting the story – as it should have done if there is no breach of prospectus covenants – and declaring that any and all physical gold demands have and will be satisfied, Xetra took a very circular approach to responding, one which in effect confirmed our concerns, that the issue was not so much with Xetra, but with the sponsor bank, in this case Deutsche Bank.
This post was published at Zero Hedge on Sep 2, 2016.