Xetra Gold and Developing OTC Landmines in the Metals Market

Xetra (mis)adventures

In a recent conversation with a German associate I was asked to review the business operations of several firms sponsoring Xetra Gold (http://www.boerse-frankfurt.de/EN/index.aspx?pageID=44&NewsID=383), a gold derivative listed on the Deutsche Boerse. The findings were significant, though many of the conclusions drawn are difficult to corroborate.

In short, there appears the be both a looming solvency risk associated with multiple sponsors of the zero-coupon bond, and furthermore, the instrument price and delivery schedule bear the risk of being materially impacted in the event of a rapid rise in the price of gold (a scenario we are expecting between now and mid-June). This fact, though not visible at first glance, is very important as it relates to current and prospective holders of the notes.

In the coming days I will publish an english-version critique of what is an inadequate presentation of risks set forth in the official prospectus, and intend to have it duplicated in German.

In the meantime, I strongly recommend current note holders to reconsider maintaining large positions in the aforementioned vehicle. It is highly unlikely that it will function to provide the security one intends to receive through an investment in the precious metal.

Silver the Catalyst — Bernanke has forgotten his chemistry

Given the developing story in the silver futures market, it is also highly probable that  the Comex will be forced to enact cash-only settlements for silver. Rest assured — the release of this long manipulated market will prompt a clearing spot price that is multiples of your average bullish 2011 target. This will occur very rapidly, and a number of major entities will close their doors as a result.

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