Deutsche Boerse Responds To Deutsche Bank's Failure To Deliver Physical Gold

Tyler Durden's picture

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.

Furthermore, the author of the original godmode article, Oliver Baron, penned his own reaction, in an article titled "Deutsche Boerse takes a stand." He writes that "yesterday's article "Xetra-Gold: Nothing but a scrap of paper?" has struck nerves: Not only that GodmodeTrader was cited among others, at "Zero Hedge" a financial website influential on Wall Street, but also at Deutsche Bank and at Deutsche Boerse, where the article has caused quite an internal stir, as Godmode traders was informed."

He further writes that Deutsche Boerse Commodities has released a fairly spongy formulated observation on the physical delivery of Xetra-Gold. This is what is said:

Deutsche Börse Commodities GmbH stresses that owners of Xetra Gold units can exercise their right to delivery of securitised gold at any time. The gold is delivered by the bank branch on which the investor has its securities account – on the condition that the branch offers this service, as the gold can only be delivered through the investor's custodian bank.

As we reported yesterday, what made this particular "failure to deliver" notable is that the original client had asked for delivery via a Deutsche Bank branch, the same bank as the ETC's sponsor, which is why, as we noted before, this appears to have been a problem involving not Xetra-Gold, as much as Deutsche Bank itself.

Baron agrees. As he writes, "in other words, it depends, according to Deutsche Boerse Commodities, on the particular bank branch whether the physical delivery can be carried out."

And, as we learned last night, it does appear that if the delivery is requested at a Deutsche Bank branch, the answer is no.

But this is where it gets even worse. As Baron adds, in a telephone conversation with the author, the Deutsche Boerse Commodities exchange was unwilling to supply further information to Godmode traders whether physical delivery is generally feasible at most bank branches or not. And worst of all, "the exchange was unable to name any bank which is in a position to deliver physical gold without problems."

Baron's conclusion: "the "right" for actual delivery at Xetra-Gold is theoretical: physical delivery is only possible if the respective bank branch also cooperates. Suspicious gold investors should consider Xetra-Gold as another form of paper gold and not as a physical gold investment."

Our take is slightly different: while we already know that physical delivery at Deutsche Bank appears to have been compromised, according to the Deutsche Boerse response, the ability of any and every other bank in Germany to deliver gold is now likewise questionable. Which begs the question: where is all the physical gold?

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Kefeer's picture

If you do not hold it, then you may not own it.

glenlloyd's picture

Where's all the physical gold? There taint none left in them there vaults!

1000 splendid suns's picture

If they can't make ends meet, they'll just move the ends...

Au_Ag_CuPbCu's picture

I have some of it in a safe in my basement...

knukles's picture

End zone or 50 yard line at The Meadowlands?

NoDebt's picture

You know, not meeting the terms of one's prospectus is, in the US, a fairly serious breach of fiduciary duty.  I suspect you will see this "gold fund" sue DB very soon (unless it is actually a part of DB itself as it's "sponsor", which I am not clear on the legaleeze on that one), since they were supposed to be the custodian of the assets in question.

In any case, if you hold "shares" in this gold fund, forget physical delivery.  It's time to sell that thing immediately.  It's gonna go down hard and fast.  It could get tied up in court for years (probably will).  This is the fire alarm going off.  Run, don't walk to the exit.  NOW.

 

NoDebt's picture

So here's Xetra-Gold's response on their website (using Google translate):

"In a recent article on a website for investors, the question is raised whether the delivery of the physical gold is actually no problem. 

The German Börse Commodities GmbH Stresses that holders of Xetra-Gold shares at any time to exercise the right to delivery of securitized gold claims. Deliveries are made ??by a committee designated by investor branch of a bank. The condition is that the office is offering this service because the delivery can take place only through the depository bank of the investor. Should occur at the custodian bank issues or problems that German Börse Commodities GmbH is always available as a contact - both for investors and for banks. 

Since the introduction of Xetra-Gold in 2007, investors have the possibility to delivery already 900 times exercised. A total of 4.5 tons of gold were delivered."

 

That sure sounds like Han Solo saying "Everything's under control here.  All systems normal.  Just a slight weapons malfunction.  We're all OK here.  How are you?" 

So, if you remember that jailbreak scene in Star Wars, I suspect we're about the get the equivalent of this final line:  "BANG!!  Boring conversation anyway. LUKE, WE'RE GONNA HAVE COMPANY!"

 

Save_America1st's picture
Shanghai Gold Fix Gaps to $9 Higher Than NY/London – This Should Drain the COMEX! – Harvey Organ

 

http://www.silverdoctors.com/gold/gold-news/harvey-organ-gold-price-new-...

 

Take a look at the Shanghai fix.  Their early morning fix (our late at night time zone) saw the fix at $1319.72.  The exact NY price at the time was 1310.94 for a difference of almost 9 dollars!
The spread has been occurring on a regular basis and thus I expect to see arbitrage happening as investors buy the lower priced NY gold and sell to China at the higher price.  This should drain the COMEX…

shamus001's picture

That took longer than anticipated...

Manthong's picture

If they were charging for custody and there was no Force Majeure in the agreement, then the alleys of Frankfurt should be littered with the remains of Douche Bankers.

bleu's picture
bleu (not verified) Manthong Sep 2, 2016 12:15 AM

Those douche bankers want to MAINTAIN the Pyramid of Power & the New World Order. http://bit.ly/24kSZbl

BaBaBouy's picture

Guys, Make Sure You Have Your Physical ...

I Fear when the Shit Hits the Fan, All Paper Claims will remain Just Paper Claims ~

It Feels Like That Time Is Near.

Stainless Steel Rat's picture
Stainless Steel Rat (not verified) BaBaBouy Sep 2, 2016 1:30 AM

RUN Aurrest RUN!

Mister Ponzi's picture

"Where is all the physical gold?"

That's an easy one! Most of it is in China with the remainder spread over various other Asian countries.

Allen_H's picture

I had an argument here a few weeks back about the fact that paper claims are useless, this person insisted they were not, I win.

Took Red Pill's picture

when SHTF the true price of gold will emerge

UnacknowledgedX's picture

Ref: "That took longer than anticipated..."

Someone knows how this ends. If the Fed has been able to keep this system from crashing for far longer than you thought was possible, it may be because they have some tools they are not telling you about; namely: Chrononauts.

In 1971, as a 10 year old DARPA Chrononaut , Andrew D. Basiago  says he was sent to 2045 to pick up (pre-arranged) a microfilm containing major (tradable) events over the last (next) 74 years, brought it back to 1971 and handed it over to his superiors as instructed.

Like I said: someone already knows how this show ends.

 

buzzkillb's picture

How would someone do this and what's the minimum? With no fees and $1mil, its just about a $7k difference.

jaxville's picture

  As soon as COMEX bars start fetching a premium from local dealers you will see your arbitrage and a run on the gold.  COMEX bars are irregular in weight (~100oz) and a minimum of 99.5 % pure.  Arbitrage with the SGE would most certainly involve refining into kilobars with a minimum of 99.9% (or 99,99) purity.  I am not sure that $900 covers  the costs of refining, shipping and hedging to deal with Shanghai.  Now if local goldsmiths or dealers were offering a $9.00/oz premium on those bars things would get very interesting very fast.

CatsPaw's picture

Im no expert, but considering the claim per ounce ratio, its already empty (several times over).

Folkvar's picture

The gold is probably there but they aren't dumb enough to hand it over, it's probably the only thing Deutsche Bank has that has any real value!

fockewulf190's picture

The redemption request for physcial gold must have have been substantial.  You would figure that DB should have been smart enough to have at least some gold stored away just in case a redemption would pop up.  But if the amount requested is more than what is available to deliver, well, there is an old saying that comes to mind that describes this situation perfectly:  "Your shit´s in the wind troop!"

Greyhat's picture

No. Sounds just like a typical german insurance and buerocrazy problem! :)

"Die Auslieferung erfolgt durch eine vom Investor bezeichnete Geschäftsstelle einer Bank. Voraussetzung ist, dass die Geschäftsstelle diesen Service anbietet, denn die Auslieferung kann nur über die depotführende Bank des Anlegers erfolgen."

"Delivery is fulfilled by transfer to a branch office of a bank the investor names. Its a strict condition, so the named branch office needs to offer this service, since delivery can only be processed with the depot managing bank of the investor."

They simply do not accept to deliver "somewhere", only to an office of the bank that processed the order for the investor. If the investor chose the wrong discount bank... Tough luck! ;)

Lore's picture

What are the criteria for a "right" or "wrong" outlet?  Is it a matter of timing (e.g., phases of the moon) and/or source (e.g., Tripoli, Bamako, Baghdad, Kiev)?

Greyhat's picture

Looks like they only do physical delivery to an office of the bank that managed the investors depot and processed the order with the exchance and this only if this bank accepts to do so.

Do we know which bank is or was managing the investors depot and processed the order?

Under these rules it will of cause not work to give an order like "just bring my gold to the next DB office, i will fetch it up there" if DB is not the depot managing bank that processed the order for the investor.

ATM's picture

and spread out in tiny quantities all over India.

NoDebt's picture

Ummmm, by the way, Xetra-gold's site is down right now.  I'm sure it's nothing. 

Shemp 4 Victory's picture

 

Ummmm, by the way, Xetra-gold's site is down right now.  I'm sure it's nothing.

No need to worry. They're probably printing more gold at this very moment.

beemasters's picture

The site is running.

How much gold is the customer trying to withdraw, by the way? This important piece of information seems missing or have I overlooked it in the previous article?

NoDebt's picture

The site has been going up and down for the last 20 minutes (possibly longer).  Somebody's hitting it hard, that's for sure.

I don't know if the exact amount was revealed (can't remember if it was mentioned in the first article yesterday) but the person in question was identified as a "retail" client of the fund.  I doubt we're talking millions or even A million.  This is a delivery that should not have been hard to make, even if DB is fudging and only holding a fractional amount of the paper value of the fund's alleged "physical gold holdings".

 

beemasters's picture

If the amount is small, I am inclined to believe it's only an inflexible procedural problem. And this is only one case? Has the procedure of delivery changed from the previous "900" cases? Has the client tried providing them options of bank branches to collect from or printed all for them to choose one? There are too many details omitted in the article. It really needs a direct interview with the client to verify.
Could it be just a competitor is hyping it up, trying to create a rush for delivery? Well, let's hope it succeeds, if so. The ponzi scheme has to fall some time.

NoDebt's picture

"Has the client tried providing them options of bank branches to collect from or printed all for them to choose one? "

If you read upstairs, the response is not confidence-inspiring.  Sounds like there are NO branches where physical delivery is assured/approved/blessed.  Sounds VERY different than the last 900 times (if, in fact, phyzz was delivered, in reality, those previous 900 times).

 

debtor of last resort's picture

Bank branches don't have any physical gold. And they are not going to distribute 5 ounces for a retail client.

That indeed raises the question: Where's the gold?

NoDebt's picture

According to the prospectus, yes, they are.  I imagine you have to notify them when and where you want to take delivery and they make arrangements for it to be delivered to that bank branch in a few days.  And they allegedly did it "900 times before" so.... something's up.

 

debtor of last resort's picture

I have to agree with that nd. They did it before, so why not now. Maybe the first signs of shortages are knocking on the door.

Scooby Doo's picture

Bullish for gold colored spray paint

Herd Redirection Committee's picture

He who panics first, panics best.

So they got to shut down to let the politically well-connected out first...

DirkDiggler11's picture

They've packed up all their shit and moved back to their headquarters at the Clinton Foundation..

bluskyes's picture

Sounds like they were corzined

Perimetr's picture

Wait . . .

The gold-plated tungsten bars are almost ready for delivery!

beemasters's picture

They are buying time, waiting for the next batch of Nazi's gold to be melted. Just ask them where that is done and collect them preferably before they turn into bars for they fetch higher value...except for those gold teeth.