What does it mean to “own” something? It’s a question you should be asking … especially if that something is gold.

The Oxford English Dictionary defines ownership as “the act, state, or right of possessing something.” That sounds about right. But what does it mean to “possess” something?

After all, you can own something that’s in someone else’s legal possession. For example, I own a house in Cape Town. My tenants have formal right of possession under a lease. I sleep at night because the sheriff of the Simon’s Town Magistrates’ Court will enforce my superior right of possession under South African law if needed — say, if they stop paying rent.

In other words, the “state or right of possessing something” that isn’t under your physical control depends on contracts and on law. That in turn depends on the ability and willingness of those who honor contracts — and enforce laws — to do so.

If you “own” precious metals under certain types of arrangements, you may be shocked to find that you’re in a legal limbo where ownership and possession are hazy at best.

It’s not a place you want to be.

Deutsche Bank Unter Alles

German mega bank Deutsche Bank is in serious trouble. The International Monetary Fund (IMF) has publicly called it one of the greatest threats to the global financial system. The Russian government (no doubt crying crocodile tears) is investigating its role in rampant money laundering. And the U.S. government has just announced a fine related to its behavior before the 2008 crisis that is more than the bank’s current market valuation.

Over the last few years, Deutsche Bank has been the principal banker and repository for a popular exchange-traded commodity fund (ETC) called Xetra-Gold. As you know, we here at the Sovereign Investor Daily don’t like metals ETFs and ETCs because you don’t really own any gold — just a claim on gold.

Xetra-Gold, however, differentiates itself from other ETCs by stating in its investor contract that “every gram of gold purchased electronically is backed by the same amount of physical gold” stored in the Frankfurt vaults of Clearstream Banking AG, a wholly-owned subsidiary of Deutsche Börse AG, one of Deutsche Bank’s subsidiaries.

Xetra explicitly says that every time an investor buys shares, a corresponding amount of gold is purchased and put into the vault, so that “investors always have the possibility of demanding delivery of the securitized amount of gold per bearer note.” Because of this promise, Xetra is extremely popular. During the first seven months of this year, order book turnover on Xetra stood at approximately €1.5 billion. The assets managed by Xetra currently amount to €3.5 billion.

But recently, an Xetra investor encountered a big surprise. When he went to arrange for delivery of physical gold, a Deutsche Bank account executive informed him that physical delivery “is no longer offered for reasons of business policy.”

Oops.

Dude, Where’s my Gold?

People piled into Xetra because it promised the small spreads and low fees of an ETC and the promise of quick physical delivery of gold on demand. Usually you get one or the other, but not both. It seemed too good to be true. It was.

As things stand, Xetra is a paper-only ETC. 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 somewhere else. That’s not what Xetra promised at all.

What about those promises of full gold backing? Nobody is quite sure how Xetra and Deutsche Bank are justifying their failure to deliver gold, but the likely culprit is a clause in investor contracts that allows Xetra to modify its terms as the need arises. Many contracts include such boilerplate, and many people ignore it precisely because it is boilerplate.

The problem is that any contract that allows one party to alter the terms at will means that the other party has no real rights of ownership. In this case, Xetra investors don’t have gold in their possession, but neither do they have an enforceable right to convert their shares into the metal.

Possession Is 9/10 of the Law

The speculation about Xetra is predictable. Deutsche Bank has probably raided its gold holdings in its scramble to remain solvent. And there’s nothing any Xetra investor can do about it, since they never really owned any gold in the first place — just a piece of paper.

If you want the protection that ownership of real gold bullion provides, you need to own it yourself and store it in your own name. You may pay a bit more in spreads and fees, but if you’re owning gold as a hedge against financial calamity, that shouldn’t matter.

The upside of avoiding massive loss far outweighs the extra cost of being a real owner of gold … not of a worthless piece of paper.

files-us-crime-gold

An employee of the Royal Canadian Mint allegedly smuggled about $180,000 in gold from the fortress-like facility, possibly evading multiple levels of detection with a time-honoured prison trick.

Hiding the precious metal up his bum.

The case against Leston Lawrence, 35, of Barrhaven concluded in an Ottawa courtroom Tuesday. Justice Peter Doody reserved decision until Nov. 9 on a number of smuggling-for-cash charges, including theft, laundering the proceeds of crime, possession of stolen property and breach of trust.

The Uck! factor aside, the case was also an illuminating look at security measures inside the Mint, the building on Sussex Drive that produces hundreds of millions of gold coins annually for the federal Crown corporation.

“Appalling,” was the conclusion of defence lawyer Gary Barnes, who described the Crown’s case as an underwhelming collection of circumstantial evidence.

“This is the Royal Canadian Mint, your Honour, and one would think they should have the highest security measures imaginable,” Barnes said in his closing submission.

“And here the gold is left sitting around in open buckets.”

Indeed, it was not even the Mint that discovered the alleged theft but an alert bank teller.

Court was told that, on multiple occasions, Lawrence took small circular chunks of gold — a cookie-sized nugget called a “puck” — to Ottawa Gold Buyers in the Westgate Shopping Centre on Carling Avenue.

Typically, the pucks weighed about 210 grams, or 7.4 ounces, for which he was given cheques in the $6,800 range, depending on fluctuating gold prices, court heard. He then deposited the cheques at the Royal Bank in the same mall.

One day a teller became suspicious at the size and number of Ottawa Gold Buyers cheques being deposited and Lawrence’s request to wire money out of the country. She then noticed on his account profile that he worked at the Mint. The first red flag was up.

Bank security was alerted, then the RCMP, which began to investigate. Eventually, a search warrant was obtained and four Mint-style pucks were found in Lawrence’s safety deposit box, court heard.

Records revealed 18 pucks had been sold between Nov. 27, 2014 and March 12, 2015. Together with dozens of gold coins that were redeemed, the total value of the suspected theft was conservatively estimated at $179,015.

But the defence countered with a couple of important points. The Crown was not able to prove conclusively that the gold in Lawrence’s possession actually came from inside the Mint. It had no markings nor, apparently, had any gold been reported missing internally.

The Crown was able to show the pucks precisely fit the Mint’s custom “dipping spoon” made in-house — not available commercially — that is used to scoop molten gold during the production process.

Lawrence, who has since been terminated, was an operator in the refinery section. Among his duties was to scoop gold from buckets so it could be tested for purity, as the Mint prides itself on gold coins above the 99 per cent level.

The great mystery that went unanswered at trial, however, was this: how did the gold get out of the Mint?

Court was told Lawrence set off the metal detector at an exit from the “secure area” with more frequency than any other employee — save those with metal medical implants. When that happened, the procedure was to do a manual search with a hand-held wand, a search that he always passed.

(It was not uncommon for employees to set off the detector, court heard.)

Investigators also found a container of vaseline in his locker and the trial was presented with the prospect that a puck could be concealed in an anal cavity and not be detected by the wand. In preparation for these proceedings, in fact, a security employee actually tested the idea, Barnes said.

Lawrence did not take the stand — as is his legal right — and the Crown was not able to definitively establish how the gold pucks made their way out of the facility.

“We do have compelling evidence,” countered Crown attorney David Friesen, of someone “secreting (gold) on his person and taking it out of the Mint.”

Barnes implied there were many ways Lawrence could have legitimately obtained the gold — he could have bought the coins, for instance — and said he made no efforts to be devious with the gold buyers or the bank. Further, Barnes said, the Mint isn’t even sure a theft took place.

“In fact, I would submit the Mint doesn’t even know if anything is missing.”

In an emailed statement Tuesday evening, a Mint spokeswoman said several security measures had been upgraded, including high definition security cameras in all areas, improved ability to track, balance and reconcile precious metal, and the use of “trend analysis technology.”

silver9-6

Summary- Chip away at the Dollar
The G-20 meeting and photo-op was worth noting in that Russia and China seemed like winners. The US and UK came out losers. The Yuan will be admitted to the SDR basket of currencies in October. On the back of that China is going to market SDR bonds with the Yuan in them to its citizens in an attempt to kickstart the Yuan as a global currency. Russia is inserting itself into Iran’s oil dealings. Not discussed were the increasing gold holdings at the big 4 Central Banks. And it won’t be until it is too late. Bottom line is leaders left the summit seeing more moves to weaken the USD on every front. And the markets reacted accordingly. We sense a little leak in the boat they are all sitting in. That leak is betrayed in USD, Gold, and Silver pricing today. What happens tomorrow may reverse today’s activity as patience returns, but today matters a lot to us. That’s how we see it. Soren K.
In Focus
Global Stock Markets
written by @anilvohra69 emphasis ours
It is a matter of time horizon. In near term, Bears made no gains in market weak patch. Technicals swinging bullish again. Meanwhile, volumes have dropped sharply. It is important not to read too much into illiquid eerily calm markets. I think it is a coiled spring which I think will go lower and higher. In the medium term, the economy is slowing. The mean outlook is for a recession beginning in a year. The Bear case would be for it begin with the inauguration of the new POTUS. The Bull case is to postpone the recession till mid 2018. I see no case for QE till at least one year after we enter a recession.
The possible exception is Japan which has been in a recession for 25 years and tried everything, all with no luck.
We cannot disagree with anything said above. Note he “sees no case for QE” for now. That does not mean he is saying there will be no QE. Because who can predict what the Fed will do, fundamentals be damned- SK
Anil @anilvohra69 on Twitter, is a Retired UBS Rates Options trader steeped in global cash flows, Financial and Technical Analysis. We recommend following him for regular reality checks using charts and observations. He is a source of objective analysis and has no axe to grind from what we see.

Summary of DB’s own statement as Sponsor, Guarantor and custodian of the Gold in the Xetra-Gold ETF

  1. They Guarantee the Gold
  2. If the Gold is not given when asked for they will work it out on a case by case basis

DB’s Explanation

As one of the sponsoring financial institutions, Deutsche Bank fulfills the obligations specified in the Xetra-Gold sales prospectus as a matter of course. This includes fulfilling claims to the delivery of physical gold certified by Xetra-Gold. This must take place through the investor’s principal bank where the investor’s securities account is maintained.
Deutsche Bank accepts such orders for delivery from its clients. The investor incurs the costs described in the sales prospectus, for example, for the forming, packaging and the insured transport to the place of delivery.
For this reason, we recommend in each specific case an individual review of the economic efficiency of a physical delivery. Should an investor’s request for the handover of physical gold not have been complied with immediately in individual cases, this will be reviewed and an individual solution will be found with the client.

Does that sound familiar to you? Imagine you are one a phone and need a solution to a problem. Do you ever find yourself hitting the “0” on the keypad trying to get through the electronic prompts? Or perhaps constantly repeating to a voice prompt: “Suprevisor, Supervisor, SUPERVISOR”
Then you understand what is going on here. Now imagine speaking with a DB rep in person trying to get your Gold:

The above is not crazy. It underlines the difference between ownership and Control. You own a contract. They control the Bullion
Here is a real life example involving Nickels. In which we tried to MAKE delivery of money to a bank and were refused. A bank refused its own country’s currency because it was inconvenient.
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, see bank.

Get it? All services disguising themselves like products sold are designed to be like Roach Motels. You can easily get in, but you’ll lose an arm and a leg getting out, if you do. The Product here is the ETF. The value added service is not having to sell your paper Gold and go across the street and buy physical Gold with it.
Remember Blockbuster? The layout was a funnel to get you deep in the store. And if you tried to leave, the labarynth directed you to the walls where the higher priced new releases were. That was no accident. And it is the template for all service business. Gold ETFs provide a service that may not be reliable. If you want precious metals and intend to take delivery, ETFs are not the way. Even the physical ones.

(Kitco News) – Although gold has had an impressive run so far in 2016, up about 24% year to date, analysts at Macquarie Research say the metal is still far from its 2011 peak, which when adjusted for inflation, would put gold at $2,000 an ounce.

“A record investment surge in 2016 has pulled gold out of the doldrums yet the price remains far below its 2011 high,” they wrote in a report released earlier in the week.

They attributed gold’s relative weakness to a stronger U.S. economy, in the form of a strong dollar and higher yields, as well as a lack of physical demand, among other factors.

“Our expectations for these suggest slow appreciation for the gold price is more likely than a spike higher,” they said.

Based on current prices, with December Comex gold last up $4.60 at $1,321.70 an ounce, the yellow metal still remains about 30% below its all-time high above $1,900 reached on September 6, 2011. “[A]nd even this year’s peak of $1,366/oz was 28% short,” the analysts explained.

“In real terms, adjusting for U.S. inflation, the shortfall is even larger. That 2011 high is worth over $2,000/oz in today’s money,” they added.

Why is gold “so weak?”

“The macroeconomic backdrop is less supportive, and this boils down to the fact the U.S. economy and economic outlook is not in the same dire straits that it was in 2011,” they said.

For this reason, they continued, the gold price as well as exchange-traded-fund holdings have not risen enough, albeit having grown by record or near-record levels this year.

The U.S. economic recovery seems to be underway, and the analysts pointed to the rise in the U.S. dollar as well as real bond yields as proof.

“Both the level of the U.S. dollar and U.S. real rates reflect greater optimism about the U.S. economy than there was in 2011/2012,” they said. “[W]hile markets remain sensitive to any signs of a U.S. recession, it is still far from most investors’ base case.”

Finally, the analysts noted that low physical gold demand is another contributing factor to keeping gold below its peak price, adding that a decline in central-bank buying has also had an impact.

Earlier this week, analysts at Deutsche Bank published research claiming that gold should be trading at $1,700 an ounce, due balance sheet expansion at central banks. Not to be outdone, Australian bank Macquarie has come out with an even more optimistic forecast for the price of the yellow metal.

Silver Mining vs. Gold Mining: The Dynamics Explained

According to Macquarie’s commodities research team, gold should be trading at $2,000/oz. The team argues that with all the prevailing political and economic uncertainty stalking the markets, the price of gold should be around 53% higher than it is today.

Why isn’t gold worth $2,000/oz?

Why isn’t the metal worth $2,000/oz? Macquarie has three theories.

Firstly, the bank’s analysts take a page out of the S&P 500 CEO’s handbook and blame the strong dollar. Just as S&P 500 companies have been blaming the strong dollar for weak earnings for the past 24 months, Macquarie points out that if measured in other currencies the price of gold is much closer to its 2011 peak.

Investment Slows, Soft Summer ‘Risks $1300’ But Bond Defaults ‘Will Spike’

For example, in sterling terms, the price of gold is around £1,000/oz at the time of writing compared to the 2011 peak of £1180/oz. Meanwhile, gold priced in South African rand is trading more than 33% above its 2011 high of ZAR 15,000 at ZAR 19,157. That said, this rally has more to do with a weak rand and South Africa’s economic troubles. Since 2011 the rand has lost a tremendous amount of value, up from 7.1 to the dollar in 2011 to 14.6 today as devaluation that will have wiped out almost all of your gold gains.

gold photo

sydney.gold.traders.goldbar.20160902

Photo by Stevebidmead,Pixbay

Gold demand is lacklustre

The second theory Macquarie has about gold prices is the lack of physical demand. The analysts write that the slump in jewellery during the first quarter of this year (lacklustre demand continued into the second quarter), probably held the gold price back. Essentially moot point. Most investors probably don’t need Macquarie to tell them the price of an asset will fall when there’s no demand.

Gold just had the best first half of the year since 1974

On the topic of demand, HSBC claimed last month that emerging market physical purchases start to decline when the price of the yellow metal reaches $1,400/oz, essentially capping any gains. On the other hand, past trends show emerging market physical demand will accelerate if gold prices dip to $1,200/oz. Simply put, physical demand cannot be relied upon to drive gold’s price infinitely higher. The figures tell the story here. During the first quarter of 2016, demand rose nearly 19% year-on-year due to the revival in ETF investment demand (up almost ten times on Q1 2015 levels). Net long speculative positions on the Comex surged from 1.9 million/oz at the beginning of the year to more than 32.6 million/oz on 28 June. Yet as investors queued up to get their hands on gold, jewellery demand — the single biggest component of consuming physical demand — slumped by more than a fifth during Q1 2016. Technology and central bank demand also fell slightly. Coin and bar demand was unchanged.

The final theory in Macquarie’s flimsy thesis of why the metal should be at $2,000/oz is that the price of the yellow metal started from a low base. According to the bank, the low of the current bull cycle was just below $1,050/oz, more than half of the 2011 peak. Therefore, it is harder to bid the price up to $2,000/oz. Probably another moot point but at least it’s something to keep readers happy over the summer months.