On Aug. 31, a German gold ETF known as Xetra Gold, and who's fund was underwritten by Deutsche Bank, sparked the first fail to deliver of promised physical gold since ABN Amro did so back in 2013.
As Oliver 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 by the German Borse document, his principal bank, Deutsche Bank."
At that 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.
Baron 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-Gold according to its prospectus, and as the explainer of how to exercise 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 units" - Zerohedge
Last June, I visited Zurich and was able to meet with some of the most knowledgeable experts and insiders in the physical gold industry. In March, I visited Lugano where I met with the top executive of the world’s largest gold refinery. As a result of these visits to Switzerland, and other points of contact, I have been able to gather extensive information on the major buyers and sellers of gold bullion in the world and the exact flows of physical gold.
This information about gold flows is critical to understanding what will happen next to the price of gold. The reason is that the price of gold is largely determined in “paper gold” markets, such as Comex gold futures and gold ETFs. These paper gold contracts represent 100 times (or more) the amount of physical gold available to settle those contracts.
As long as paper gold contracts are rolled over or settled for paper money, then the system works fine. But, as soon as paper gold contract holders demand physical gold in settlement, they will be shocked to discover there’s not nearly enough physical gold to go around.
At that point, there will be panicked buying of gold. The price of gold will skyrocket by thousands of dollars per ounce. Gold mining stocks will increase in value by ten times or more. Paper gold sellers will move to shut down the futures exchange and terminate paper gold contacts because they cannot possibly honor their promises to deliver gold. - Daily Reckoning
As with all things in life, if you don't hold it, you don't own it.