Update-2: Xetra, Deutsche Bank, Gold Delivery Story

Gold

Click headline for latest 7:00 AM: UPDATE: Deutsche Boerse responds to Xetra-Gold Delivery Allegations

Update 5:30 AM EDT- DEUTSCHE BORSE RESPONDS Click to scroll

UPDATED: 8:05 PM- ISSUES UNRESOLVED

Background

Earlier today Wall St. Whisperer posted a story covering the seeming failure of a Gold backed fund to make delivery of Bullion when requested by a share holder. The fund is called Xetra Gold, Deutsche Bank’s gold-backed ETF. We have since pulled the story awaiting their explanation which we believe is in earnest and forthcoming. Here are the updates

UPDATE: no response yet from Xetra, Deutsche Bank or Deutsche Borse

But there is new info out there, and it may be that our professional courtesy of removing our earlier post was taken for granted
Warning, All translations from German are not perfect. We chose to use a tranlation program instead of copy/pasting most of the material from other sources

Here is Oliver Baron of Godmode Trader, the original whistle blower on the "failure to deliver situation" Translated from German:

"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.

Next Baron states:

The German Börse Commodities GmbH has now released a fairly spongy formulated observations on the physical Auslieferbarkeit of Xetra - Gold . The key phrases are: . . " The German Börse Commodities GmbH Stresses that holders of Xetra - Gold shares at any time to exercise the right to delivery of securitized gold contends Deliveries are made by a committee designated by investor branch of a bank requirement is that the office offers this service because the delivery can take place only through the depository bank of the investor .In other words : It depends loud German Börse Commodities on the particular bank branch , whether the physical delivery can be carried out . In a telephone conversation the German Börse Commodities GmbH wanted against Godmode traders make no further information on whether the physical delivery in most bank branches , experience shows feasible or not . The German Börse Commodities GmbH could call on demand any bank in which the delivery works currently easily

Oliver Concludes:

Conclusion: The actually acquired with Xetra - Gold is entitled to the delivery of securitized gold is more theoretical : Only if the respective bank branch also cooperates, a physical delivery is possible . Suspicious gold investors should consider Xetra-Gold as another form of paper gold and not as a physical gold investment .

First Lets Identify the Players

Xetra-Gold is a Bullion backed ETF created and branded by Xetra. Not unlike the Dow-Jones brand of indices
Deutsche Borse Exchange (DBE) is the commodities exchange on which this ETF trades
Deutsche Bank (DB)is the ETF's sponsor
GodMode Trading/ Oliver Baron is the shareholder who was rebuffed in his attempt to take delivery

Play by Play

GodMode claims that Deutsche Bank, the ETF sponsor and guarantor of the Gold backed ETF was unable to deliver the Gold Godmode sought delivery of.
- The Xetra-Gold Prospectus clearly states that shares are convertible into physical Gold at any time and brag about the amount distributed
Deutsche Borse today released a statement saying: "Deliveries are made by a committee designated by investor branch of a bank requirement is that the office offers this service because the delivery can take place only through the depository bank of the investor".
- Essentially, Deutsche Borse can make delivery at any bank branch willing to execute.
- And that means the banks can all refuse to do so.
Why would a bank refuse ot handle the transaction other than too small or too inconvenient?
1. Counterparty Risk: In the case of a non DB branch, They are not comfortable with the counterparty on the other side of the transaction, in this case Deutsche Bank ultimately. They do not want to lay out Gold on a promise to get it back form DB
2. A Deutsche Bank Branch: refusal by a DB branch is what happened here to GodMode. reasons?
  - that particular branch was unable to deliver, because it didn't have the Gold or a safe place to keep it- So which branch did they direct GodMode to?
  - If GodMode wasn't given a branch location where his execution could occur, then-Where is the Gold?
GodMode then contacted Deutsche Borse Exchange seeking an alternate place to get their Gold
- DBE was unwilling/unable to give GodMode a branch or any bank that could make delivery without logistic problems

Possible Explanations for what is in the least a technical violation of the prospectus contract At worst it begs the question as to why DB took a delivery holday and why was DBE complicit?

Logistics errors were compounded with Bureaucratic responses- from our experience (see below), that is possible, but the structure and division of control vs responsibility is no accident. It is set up to bottleneck things if there ever were a delivery issue. Throttle demand when a rush comes. Similar to being able to subscribe to a mailing list but it being near impossible to remove yourself. A hallmark of Fractional Reserve Banking BTW.
Deutsche Bank doesn't have the Gold available

Either way, to not come out and address the issue properly in this day and age a big mistake, and fosters growing mistrust. it creates bank runs and self-fullfilling prophecies

Personal Experience

This has happened to us on several occasions. The first 2 that show that a bank is actually able to refuse to dispense and worse, refuse to accept US currency at its branches if it doesn't have room. With no obligation to accommodate the person trying to deposit said cash via another branch. The third example shows how Banks can do what ever they want so long as teh other side ofthe trade is fragmented and has less capital then they do.

We requested large sum of currency in change once AND COULD NOT GET MONEY
- "We don't have that kind of currency here"
- how do i get it?
- "It will take 4 weeks. We will take delivery of as much as our vault can handle and you can pick it up"
- What if I want it now? which branch has that amount?
- None, we use an outside firm to warehouse change and do not have that volume on hand in the tri-state area. We have to request it
We tried to make delivery of a large sum of change AND THE BANK REFUSED OUR CASH
1. every bank said NO. They could not take that volume of change
2. They all told us to contact an outside change service like Loomis, Brinks, or any other firm they had a contract to deliver with
3. Loomis actually refused nickels in its own wrappers saying it had to be counted at the bank- Bank doesn't have room, see loomis. Loomis needs bank to count it!
On occasion we took delivery of Silver to arb the contango at rollover time. AND WE HAD TO PAY FOR SILVER WE DID NOT RECEIVE YET Sometimes delivery receipts weren't in our hands until after we had sold it out again, 3 to 5 days later
1. The FCM wanted its cash next day after we declared taking delivery
2. BUT the receipts for the Silver weren't in our hands until 3 days after we had sold the physical back out

We later learned why this happened. Two potential reasons were given by a "Player" in the market

They didn't have it and had to lease it- this was during the PhiBro short squeeze
They wanted to give you the "heavy" Silver. I.E, bars with the highest % of impurities but still under the wire for the standard

The Takeaway

Xetra-Gold is in violation of its prospectus covenants even if only technically
Something more sinister may be at work wihtregardsto the fiduciary responsibities ofDBE on DB
DB may have all the Gold in the world handy, but if Oliver Baron is beinghonest about GodModes difficulties then something is wrong
Our personal experience tells us that this is a mix up. But even if it is, why not rectify itimmediately. Unless ofcourse you can't or are just incumbent and the only show in town

DBE Responds- Email attached

Note that DBE spokesperson responded at 9:45 AM their time that he would give a detailed explanation in the hour. Then responded to the issues at `10:35 AM . Let's first note the tactics of a spokesperson who wants to get his message out, but is hamstrung by lawyers assessing risk. Any decent spokesperson would get a PRE email out as he struggled to get permission to send the proper response, as Patrick did. That is our opinion of what happened at 9:45. Getting out your statement finally at 10:35 AM your time is hardly putting the issue as a high priority when one of your firms flagship product's reputation is on the line. Huddled with lawyers before going public is more like it. But vagueness only creates more controversy. And the response is not entirely satisfactory to us at MarketSlant. We'd bet it isn't to the spokesperson either.

Overview. The letter: we have 4 problems wiht the letter's attempt to address the issue

It addresses the single person's attempt as isolated stating that particular branch was not in a position to deliver to him- so far so good
It says : Delivery of Gold is still "possible"- is this lost in translation? Because possible is not a strong word. We'd like to hear mandated or necessary to our product's integrity. We'd like to hear emphatic words like in their press releases. Words that do not equivocate. Or just an answer of"how" other than a repost of the rules
DBE spokesperson Patrick Kalbhenn does address that the particular branch did not deal in Gold deliveries. Fair enough. But he goes on to say that it has"nothing to do with our process. So what does?
Oliver Baron of GodMode also claims he contacted DBE seeking other branches and the person on the other line was unwilling/unable to help him- why was that not addressed as true and a mix up or not true at all?

The lack of certainty, the hesitancy to use superlatives in defending their mandate to deliver Gold, and the utter lack of counterpoint to the GodMode's trade's claims on give us pause. More on this in a separate post

Xetra Gold feedback of issuer
patrick.kalbhenn@deutsche-boerse.com
Today, 4:36 AMSoren K
Hello Soren, as I wrote in my email above one hour ago, please find attached the website statement of Deutsche Börse Commodity GmbH's management in English:---The question was raised in a current article on an investor website of whether physical gold can in fact be delivered without any problem.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. Deutsche Börse Commodities GmbH may be contacted by investors as well as banks at any time should the custodian bank have any questions or problems.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. ---Please find some further important background information regarding the product and the original article on the German website Godmode Trader:Neither Xetra nor Deutsche Bank are the issuer of the exchange-traded commodity “Xetra-Gold”.The issuer of Xetra-Gold is Deutsche Börse Commodities GmbH, based in Frankfurt Main, Germany. It is a joint venture between Deutsche Börse AG and the banks Commerzbank AG, Deutsche Bank AG, DZ BANK AG, B. Metzler seel. Sohn & Co. KGaA, along with Swiss-based Bank Vontobel. Umicore AG & Co. KG, a subsidiary of Umicore S.A., which operates several gold refineries across the globe and manufactures gold bars, is also a partner. The partners bundle their exchange, financial market, settlement, custody and logistics expertise with the aim of providing an efficient and transparent market in the financial centre of Frankfurt for gold trading in Europe.Deutsche Börse AG organizes trading, clearing (anonymously via the central counterparty) and settlement of the transactions. Clearstream Banking AG stores the gold in its vaults in line with highest security standards and oversees that each unit of Xetra-Gold is always covered by exactly one gram of physical gold.(You find this information here: https://www.xetra-gold.com/en/about-us/)For delivery of the physical gold, investors should contact their own bank (bank of investor’s security account) for exercising the right of receiving gold. For operational reasons, gold can only be delivered via a branch of a bank – on the condition that the specified branch offers this service. The investor's client advisor applies for delivery to the bank maintaining the investor's securities account.The article on the German website Godmode Trader describes a case, where an unknown person who seemed to have issues with the gold delivery when he entered a banking branch of Deutsche Bank asking for the gold delivery. The article further claims that he got the information that this branch does not offer the delivery service for clients anymore. This has explicitly nothing to do with the general process of delivering Xetra-Gold to investors. Of course, delivering gold to customers is still possible.You find detailed information on Xetra-Gold’s delivering process here: https://www.xetra-gold.com/fileadmin/user_upload/Downloads_English/Brochures/Ausuebung_XetraGold.pdf ---Thanks a lot, Patrick

Look for more updates tomorrow where we hope a satisfactory reply is given us.

Sorenk@marketslant.com

Xetra Claims Mix up

UPDATE: 5:19- We email Xetra

From: Soren K. WallSt.WhispererSent: Thursday, September 1, 2016 5:08 PMTo:XXXXXXXXXXXXSubject: Re: Xetra-Gold -MarketSlant.com

Gentlemen,

MarketSlant has withdrawn the story in good faith after being alerted of the situation. We would like the reciprocal courtesy of a written response explaining the mix up. Your response will be published to satisfy our readers on the topic with no editorial comments at that time. A copy of your press release in the body of an email would be effective in showing your seriousness and for our audience.

Regards, Soren K.

Herren,

MarketSlant hat die Geschichte in gutem Glauben zurückgezogen, nachdem Sarah mich an die Situation aufmerksam gemacht. Wir möchten die gegenseitige Höflichkeit einer schriftlichen Antwort Erklärung der Verwechslung . Ihre Antwort veröffentlicht werden unsere Leser über das Thema ohne redaktionelle Kommentare zu dieser Zeit gerecht zu werden. Eine Kopie Ihres Pressemitteilung im Körper einer E-Mail würde , um Ihr Ernst wirksam sein und für uns, unsere Glaubwürdigkeit mit unserem Publikum zu halten.

Soren K.

UPDATE: 4:30 PM ET- Xetra requests courtesy pending a detailed explanation

We were contacted by Xetra directly. They stated that the whole event was a "mix up". The representative asked the courtesy of removing the post under the Promise that a full explanation was forthcoming. In good faith we have removed the content from the Post. When we receive the explanation we will post it on the site.

Given that it is after business hours there, and there is a language barrier, we do not expect clarity until Tomorrow. But as soon as we do get an explanation it will be published standalone. If we do not get a satisfactory explanation, the post will be uploaded as we begin to investigate the truth.

Thank You

Wall St. Whisperer and Soren K.

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