Gold bugs have warned about it for years. One of the big Wall Street bullion banks would default on physical gold delivery. Well, this happened, and the gold bugs responded just as you might expect them to do so: with panic. But, is it justified?

Yesterday, reports surfaced on a German website that a client of Xetra-Gold Exchange-Traded Commodity, a bond on the Deutsche Börse commodities market, was told Deutsche Bank would not deliver requested gold. This contradicted Xetra-Gold’s company warranty, which stated customers were entitled to delivery of the certified amount of physical gold at any time. The company added:  “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.”

Perhaps, its a common refrain heard by gold buyers the world over. Promises of future delivery.
Controversy began when Godmode Trader stated a reader “sought physical delivery of his holdings of Xetra-Gold. For this he approached, as instructed by the German Börse document, his principal bank, Deutsche Bank.” However, he was told that “the service” was no longer available for “reasons of business policy”.

As the contract read:

“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,” the German article read. ” 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.”

ZeroHedge, a popular financial website curated by an unknown person(s), said that, during an investigation, “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.”

The website went further, critiquing how the request for gold delivery took place at a bank branch: “And, as we learned last night, it does appear that if the delivery is requested at a Deutsche Bank branch, the answer is no.”

While ZeroHedge goes onto muse about how gold delivery at Deutsche Bank is already compromised, Reggie Middleton, popular financial blogger, differs: “Chances are that these gold “investors” got hoodwinked, bamboozled, led astray! Let this be a true lesson in counterpaty risk for anyone who will bother to read!”

While many might say Bitcoin is an alternative these days, the issues at hand in such stories do not involve physical gold.But, rather, physically backed gold certificates.

“Physically backed: The issuer uses the proceeds from the issue of Xetra-Gold to purchase gold. The physical gold is held in custody for the issuer in the Frankfurt vaults of Clearstream Banking AG, a wholly-owned subsidiary of Deutsche Börse. In order to facilitate the delivery of physical gold, the issuer holds a further limited amount of gold on an unallocated weight account with Umicore AG & Co.,” says Xetra-Gold. Ultimately, that’s not what we do here at, where deliverable bullion is the focus.


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