Xetra Gold ETF Fails to deliver- Play by Play

Gold

Background

Yesterday we ran a post on trader Oliver Baron nad GodMode trading's difficulty and ultimate inability to get physical gold  for its shares in an ETF called Xetra-Gold. As you can imagine, this is a hot-button for those of us who are aware that countries like China can and will confiscate Gold. A hot button because there is a real fear that Gold will increasingly be difficult to get form custodian vaults on demand. When the so called tin-foil hat conspirators are increasingly proven right by firms like Wiki-Leaks, one has to wonder at the integrity of all institutions. And so this is an attempt to recount Godmode's issues, our coverage and DBE's request for us to stand down until they explained everything. They did so at 10:35 AM their time. What follows is a play by play for the unitiated, and an attempt to organize the events in an easily digestible manner.- Soren K.

First Let's Identify the Players

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

Chronology of Events

  1. GodMode claims that Deutsche Bank, the ETF sponsor and guarantor of the Gold backed ETF was unable to deliver the Gold an individual notaffiliated with GodMode sought delivery of

From  GodMode's Oliver Baron in a posted response

Oliver Baron Redakteur

Soren K, unfortunately the postings on your site contain several factual errors. The gold delivery was NOT requested by me or by GodmodeTrader, but by a reader of our platform who showed us the relevant communication with Deutsche Bank.

The DB branch told the customer that delivery was no longer possible for "reasons of business policy". There was no indication whatsoever that this only applies to this specific bank branch. The client got the impression that delivery would also not be possible in other DB branches.

We did ask Deutsche Bank if there are branches where delivery is actually possible, but did not receive any answer to that question.

 

  • The Xetra-Gold Prospectus clearly states that shares are convertible into physical Gold at any time and brag about the amount distributed
  1.  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.
  2. 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?
  3. 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

MarketSlant's Post

Right about here writer Wall St. Whisperer posted on the situation and linked to the website that described the process for Gold delivery. We were politely asked to put the story on hold pending an explanation. Which we did. Meanwhile, GodMode and Zerohedge had not received an explanation and were writing their own responses.

GodMode's Oliver Baron Posts..

  • WARNING: All translations from German are not perfect. We  chose to use a translation 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 .

 

Our Take at That Point

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 holiday and why was DBE complicit?

From GodMode again

Oliver Baron Redakteur

We did also ask Deutsche Börse Commodities GmbH for a list of banks or bank branches, where delivery would be possible. Deutsche Börse Commodities told us they could not provide us with such information.

  1. 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.
  2. 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. We do not picture a DBE representative telling us how Fractional Reserve Bullion banking  is good for us like in "It's a Wonderful Life"-SK

Take Away Part 2

  • Xetra-Gold may be in violation of its prospectus covenants even if only technically
  • Something worse may be at work with regards to the fiduciary responsibilities of DBE and DB
  • DB may have all the Gold in the world handy, but if Oliver Baron is being honest 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 it immediately. Unless of course you can't or are just incumbent and the only show in town.

Personal Examples of Gamesmanship and Delaying Delivery

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 the other side of the trade is fragmented and has less capital then they do.

  1. 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
  2. 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!
  3. 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

Our Request for Information

Our email to them

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.

Deutsche Borse Responds

About the Response

  1. 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
  2. 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
  3. 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?
  4. 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.

The Response
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

That is it for now. We will be sure to update you as more information is forthcoming. It is our goal to provide a comprehensive recap and to be objective in our own analysis. WE have used restraint in our opinions based on our experiences and own integrity in matters such as these. But we also do not need total metaphysical certainty to call something what it is. Which we will do if it comes to that.

if we were DBE we'd be getting ready to be sued by Xetra to cover their own potential breach of covenant. Ultimately this will be between DBE and Deutsche Bank. itwill either be a logistical/administrative mix-up, or DB didn;t have the Gold and instructed branches ot not beavailable and DBE to run interference, or something wemissed that is much less/more nefarious- Soren K

 

Previous posts

UPDATE: Xetra, Deutsche Bank, Gold Delivery Story

CORRECTION: Deutsche Bank's Gold-backed ETF Gone Bad?

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