Dutch Bank Wont Deliver

(March 25, 2013 - by Patrick A. Heller)

In letters received by customers of the large Dutch bank ABN Amro over this past weekend, the bank announced a customer service policy change taking effect on Monday, April 1.

Currently, the bank has stored physical gold, silver, platinum, and palladium for their customers. Beginning next week, the bank will no longer allow customers to take physical delivery of the precious metals that they own and are stored at the bank.

The letter states that customers who want to sell their holdings can do so and be paid the “bid” price for the metal. Up until now, the bank had used a price midway between the wholesale bid and ask levels for conducting customer transactions.

A more curious statement in the letter, probably meant to reassure customers about the safety of their precious metals holdings at the bank, says that customers need not do anything because the bank has their investments in precious metals. Unfortunately, this statement sets alarm bells ringing in my head.

A bank’s “investments” in precious metals may not necessarily be in the form of physical product. It is possible that the bank might not have sufficient physical metals in custody to satisfy all liabilities owed to their customers. Instead, it might be true that the bank considers itself covered through ownership of 1) commodity futures and options contracts, 2) derivatives contracts, 3) share in exchange-traded funds, or 4) various other forms of “paper” precious metals that may or may not represent actual deliverable metals.

To me, such a letter is more of an alert that the bank might be at risk of default on physical precious metals that they owe to their customers. If I had such an account there, you can be sure that the physical metals would be withdrawn this week. If I had other financial accounts at the bank, I would probably transfer them immediately as well.

What ABN Amro is doing to their customers beginning next week is also a risk that applies for any physical precious metals storage facility that is owned by any other bank anywhere in the world. For your own protection, I continue to recommend having direct custody of your physical precious metals and avoiding the ownership of “paper” precious metals.