What does it mean to "own" something? This is a question you should be asking yourself … especially if that something is gold.
the Oxford English Dictionary defines ownership as "the act, state, or right to own something". It seems fair. But what does it mean to "own" something?
After all, you can own something that is legally owned by someone else. For example, I own a house in Cape Town. My tenants have a formal right of possession under a lease. I sleep at night because the Simon & # 39; s Town Magistrates' Court Sheriff will assert my superior right of possession under South African law if necessary – say, if they stop paying rent .
In other words, "the state or the right to own something" that is not within your jurisdiction. physicalcontrol depends on contracts and the law. This in turn depends on the ability and willingness of those who honor the contracts – and enforce the laws – to do so.
If you "own" precious metals under certain types of arrangements, you might be shocked to find that you are in a legal bind where ownership and possession are blurred at best.
This is not a place you want to be.
Deutsche Bank Unter Alles
German mega bank Deutsche Bank is in serious difficulty. The International Monetary Fund (IMF) has publicly called it one of the greatest threats to the global financial system. The Russian government (which is no doubt crying crocodile tears) is investigating its role in widespread money laundering. And the US government just announced a fine related to its pre-crisis behavior of 2008 that is more than the bank's current market valuation.
Over the past few years, Deutsche Bank has been the primary banker and repository for a popular publicly traded commodities (ETC) fund called Xetra-Gold. As you know I don & # 39; t like ETFs and ETCs on metals because you don & # 39; t really own gold – just a claim on gold.
Xetra-Gold, however, differentiates itself from other ETCs by stating in its Investor Agreement that "every gram of gold purchased electronically is backed by the same amount of physical gold" stored in the vaults of Frankfurt from Clearstream Banking AG, a wholly-owned subsidiary. of Deutsche Börse AG, one of the subsidiaries of Deutsche Bank.
Xetra explicitly says that every time an investor buys stocks, a corresponding amount of gold is bought and put in the vault, so that "investors always have the option of demanding the delivery of the quantity of gold securitized by bearer note ”. Because of this promise, Xetra is extremely popular. In the first seven months of this year, Xetra's backlog sales amounted to around 1.5 billion euros. The assets managed by Xetra currently amount to 3.5 billion euros.
But recently an Xetra investor encountered a big surprise. When he went to arrange delivery of physical gold, an account manager at Deutsche Bank informed him that physical delivery "is no longer offered for commercial policy reasons. ".
Man, where's my gold?
People crowded into Xetra because it promised the low spreads and low fees of an ETC and the promise of rapid physical delivery of gold on demand. Usually you get one or the other, but not both. It sounded too good to be true. It was.
As it is, Xetra is an ETC. paper only. If you want to turn your shares into gold, you have to sell them to a willing buyer and use the proceeds to buy gold elsewhere. This is not at all what Xetra has promised.
What about those golden pledges of full support? No one is quite sure how Xetra and Deutsche Bank justify their inability to deliver gold, but the likely culprit is a clause in investor contracts that allows Xetra to change its terms when needed. Many contracts include such a master key, and many people ignore it precisely because it is a master key.
The problem is, any contract that allows one party to change the terms at will means the other party has no real property rights. In this case, Xetra investors do not have gold in their possession, but they also do not have the enforceable right to convert their shares into metal.
Possession is 9/10 of the law
Speculation on Xetra is predictable. Deutsche Bank likely raided its gold holdings in its fight to stay solvent. And no Xetra investor can do anything about it, because they never really owned gold in the first place – just a piece of paper.
If you want to enjoy the protection offered by owning real gold bullion, you must own it yourself and store it in your name. You can pay a bit more in spreads and fees, but if you own gold as a hedge against financial calamity, that shouldn't matter.
The benefit of avoiding massive losses far outweighs the added cost of being a real owner of gold … not a worthless piece of paper.