ABN AMRO leaves gold investors empty-handed

ABN AMRO leaves gold investors empty-handed, as the bank closes all weight accounts for gold, silver and platinum. Approximately 2,000 customers who have precious metals in their weight account at the bank have to sell them before April 1. If they fail to do so, ABN AMRO will sell their positions at the current market price. The bank cannot guarantee that they will sell the precious metal at a favorable price.

This decision comes at a particularly unfavorable time for gold investors. At the same time the bank is forcing its customers to sell, a run on physical gold has started. Investors who thought they were well positioned with their precious metals at the ABN AMRO can now join the long queue of people who want to buy gold now.

Weight Account

Back in 2013, the weight accounts at ABN AMRO were transferred to another custodian back. The Swiss bank UBS took over Deutsche Bank’s role as custodian of the gold. ABN AMRO customers were informed of this by letter. Below is the letter notifying customers about the change in terms and conditions. Back then, I made some notes about the most important changes.

Customers who held physical precious metals in custody on an ABN AMRO weight account had already been warned. With the switch to a new custodian, it was no longer possible to physically deliver the precious metals. The precious metal would be handled in a ‘different way’, a second warning for the attentive investor.

In 2013, ABN AMRO sent this letter to customers with a weight account.

Unallocated gold?

Back in 2013, gold market analyst Jaco Schipper warned about the consequences of this change. On his blog he wrote that customers may be left empty-handed. He asked himself what customers actually own with this weight account and drew the right conclusion:

“What do precious metals investors at ABN Amro really buy? Obviously, it is not an equivalent of physical ownership. It is a “paper only” account and even that is not a proper description because an account is never a one-way street. Despite ABN Amro denominates this account in terms of weight that is valued in euro, clients can never withdraw precious metals, so this denomination is entirely meaningless.

Also, it cannot be considered a quasi ETF-certificate because at most, it is an “un-unallocated” claim: the invested funds may be anywhere and likewise the gold. And since physical delivery has been postponed all together, it cannot be regarded as a quasi futures contract or an option on that either.

Given these new conditions, this precious metals investment has become some sort of twisted commodity swap whereby investors swap their money to invest in any upside price potential of precious metals and whereby they take on all sorts of financial counterparty risks without hedging anything at all.

Investors always face a price risk, but if one “buys” precious metals with ABN Amro, then one also faces a forced sell-off risk, a (discounted) cash-settlement risk, and last but not least, an outright default risk. And here’s the gist of it: nobody can be held liable if these risks materialize. In other words, investors bet their money on a horse that might or might not exist and for which they can know upfront, this horse will never cross the finish line.”

Hollandsche Bank Unie

ABN AMRO’s weight accounts arose from an acquisition of Hollandsche Bank Unie (HBU). This bank handled the trade and storage of precious metals from its office at Coolsingel in Rotterdam. In 1967, the shares of this bank were taken over by ABN, which later merged with Amro bank. When ABN AMRO merged with Fortis in 2009, HBU was sold to Deutsche Bank. Customers were then given four years to physically deliver or sell their precious metals.

The termination of these weight accounts marks the end of a history that goes back to the founding of the Hollandsche Bank Unie in 1914. In the office where the HBU started trading precious metals more than a hundred years ago, customers can once again buy precious metals. Gold trading company Aunexum will soon open a new store in that same location.

This article originally appeared in Dutch on Geotrendlines.nl