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There Is No Default Or Fraud Committed On The Xetra-Gold Securities

by Dave Kranzler, Investment Research Dynamics:

Anyone who purchases paper gold with the belief that it is and investment in gold is an imbecile.

Last week Zerohedge broke a story about an investor who tried to redeem shares in Xetra-Gold “notes” in exchange for the designated amount of gold represented by those notes. The story gained legs on the internet as a “refused delivery” and a “delivery default.” I received several inquiries about this and my only response was that someone needs to go through the prospectus in order to determine what type of event has occurred.

went through the prospectus and so far, everything published on the internet, including any claims made by Zerohedge, are reckless, useless and incorrect. Here’s a link to the prospectus: Xetra-Gold Notes. Ultimately, there has not been a legal default. Furthermore, here has not been any fraud committed because there has not been any breach of contract.

Let’s start with some facts directly from the prospectus. 1) The Issuer is Deutsche Borse Commodities GmbH; 2) The Custodian is Clearstream Banking AG; 3) The Debtor of the Gold Delivery Claims is Umicore AG. That latter aspect is interesting. Umicore is a Swiss metals refiner and trader. Any claims of failure to deliver should be directed at Umicore. The securities in question are unsecured Notes of the Issuer and the only “asset” of the Issuer is a “claim for delivery of one gram of Gold in accordance with the Terms and Conditions.” That’s it, there are not any other assets in Deutsche Borse Commodities GmbH.

Deutsche Bank is one of the redemption agents. But Zerohedge labelled Deutsche Bank as a “Designated Sponsor” as if it meant that DB had obligations beyond what was defined by the prospectus. In fact, DB is a “designated sponsor in the electronic trading system” of the notes. In other words, DB is the primary market maker in the trading of the securities. Nowhere in the prospectus does it specify that DB is obligated to fulfill delivery of gold in exchange for redeemed Xetra-Gold Notes. Note: This is not a defense of DB – I regard DB as one of the most vile and corrupt banks on earth; but legal facts are facts that need to understood and regarded.

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