Do You Really Own Your Gold?

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Do You Really Own Your Gold?

Postby EzineArticles » 01 October 2016

What does it mean to "own" something? It's a question you should be asking... especially if that something is gold.

gold-and-scales1.jpg


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 physicalcontrol 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, I 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.

Ted joined The Sovereign Investor Daily in 2013. As an expat who lived in South Africa for 25 years, Ted specializes in asset protection and international migration. Read more of what he has to say about offshore living here. http://thesovereigninvestor.com/

Article Source: http://EzineArticles.com/expert/Ted_Baumann/1964192

Article Source: http://EzineArticles.com/9536530

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Re: Do You Really Own Your Gold?

Postby Bounty » 12 February 2017

There is a broader risk to gold ownership and that is loss of emotional control. You touched on it when you discussed buying in at the highs and selling below the buy point, which is related to emotion; however, it runs far deeper than that. Gold is a very emotional metal because it tends to attract very passionate people. Almost every emotion a person has can be amplified by the addition of gold.

Love? What is one of the most cherished gifts that can be given to a loved one? Fear? What do people often run to when faced with economic catastrophe or the concern about economic catastrophe? Greed? Think of the miser who will hoard without limit to the point of never being content. Envy? How often do we see videos of a coin or stack being showcased and feel just a tad bit envious? And the list goes on.

While gold can be a major focus for us PM investors there is a risk that any one of our emotional hangups can be amplified by adding gold to the mix. Gold only makes us more of what we already are. That is why we always need to test our emotions when it comes to gold and question every action we make so as to ensure that our actions are driven by the brain and not by the heart.


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