(updated with response from ABN below)

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In a letter to clients, Dutch bank ABN Amro has told clients that they will no longer be providing physical delivery of precious metals including Gold, Silver, Platinum, and Palladium. ABN blames the change on its switch of precious metal custodians. Clients owning precious metals will see their account balances adjusted by the prevailing Bid prices of gold. (A copy of the letter has been posted on various sites with Silver Doctors providing what is one of the best translations)

So the question now is what is the real story, is there a lack of global gold reserves to back up actual trading? Is ABN Amro trading against their client’s book and therefore isn’t a true custodian (in recent research they have been calling for lower prices)? Are they deflecting a possible ‘run on the bank’ of metals? Or is there a legit reason why changing precious metal custodians is inhibiting the delivery of physical delivery of gold? One angle being presented is that gold is being held back by large global and central banks to manipulate prices.

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We reached out to ABN Amro before posting but a representative answered that they were unable to answer questions from the media. In response to our published article, Alex Evans, Senior International Press Officer at ABN Amro sent us a letter to clarify the issue. At issue is the reorganization of a small unit called Hollandse Bank Unie that faciliated trading in physical gold.

“Until 2009 ABN AMRO had a small bank that traded in physical gold called Hollandse Bank Unie (HBU) located in Rotterdam. Following our integration with Fortis Bank Netherlands, ABN AMRO was required by the European Commission to sell a part of its commercial banking portfolio in the Netherlands to Deutsche Bank. This was publicly announced at the time and included the sale of HBU, along with the transfer of HBU clients to Deutsche Bank. These HBU clients were able to use ABN AMRO facilities during the transition phase, and Deutsche Bank also offered its HBU services to ABN AMRO. Deutsche Bank subsequently announced last year that they would cease HBU activities in the Netherlands from 1 April 2013 – including this facility for ABN AMRO. We recently sent a letter to small number of affected clients, advising them that we can no longer make use of the HBU facilities provided by Deutsche Bank from this date. ABN AMRO has not provided these services directly since the sale of HBU, so there is no change to our offering – only to the facilities provided by Deutsche Bank. We have also found a new provider for these services, that is UBS.”

We initially proposed that the letter to clients was another sign that trading has an essence become securityless and said:

What is apparent is that trading nowadays has become nearly all speculative with very little actual interest in the underlying securities. In the similar way to how retail FX and CFDs are simply instruments that profit and fall based on underlying prices, but actual currencies are never passed between brokers and clients, the same structure is occurring between institutional desks. Specifically this was seen during the collapse of the Credit Default Swap market during 2008 when the value of CDSs were very often way above the actual debt amounts they were being created to insure. The CDS crisis revealed that dealers didn’t in fact have coverage for their products which led to multiple collapses and near bankruptcies of major financial institutions.

In light of the response from ABN Amro, I guess we can say that the moral of the story is that transparency is vital. Specifically at a time when bank haircuts are being proposed, any changes, even the small ones can trigger an avalanche of negative opinion.