10 years of Xetra-Gold: a look back

News Arnulf Hinkel – 15.12.2017

According to the November data of the World Gold Council, 2017 witnessed a year-on-year increase of around 8.3 per cent of inflows into gold-based ETFs and ETCs, a total of 198 tonnes. German ETCs accounted for 35 per cent of the overall increase – of which 53.3 tonnes where investments in Xetra-Gold. The leading physically backed European ETC grew by 49 per cent in 2017. Just ten years ago, Deutsche Börse Commodities GmbH, a joint venture of Deutsche Börse in collaboration with Bankhaus Metzler, Bank Vontobel, Commerzbank AG, Deutsche Bank AG, DZ Bank AG and Umicore AG & Co. KG, was founded in Frankfurt, Germany. With the introduction of the innovative Xetra-Gold bearer bond, which is fully backed by physical gold, the new issuer intended to ensure its efficient, transparent and cost-effective trading. With a bid/ask spread of sometimes even less than 0.1 per cent, Xetra-Gold has excelled at meeting this standard. 

Another highlight of the physically backed ETC was the holders’ right to the delivery of the certified volume: one gram of gold per bond. Initially, Xetra-Gold seemed of particular interest to institutional investors, to diversify and hedge their portfolio at low cost, but after just 100 trading days on the Frankfurt Stock Exchange, Xetra-Gold had become the ETC with the highest turnover. Institutional investors such as insurance companies and pension funds, who appreciated the ETC being in compliance with the EU’s UCITS directive, were joined by an increasing number of private investors. 

After demand in Germany grew rapidly in the course of 2008, Xetra-Gold was also licensed for distribution in other countries. Trading in Luxembourg started in November 2008, followed by Austria in March 2009. At the end of the year, Xetra-Gold's market share in commodities trading on Xetra®, the electronic trading platform of Deutsche Börse, already exceeded 32 per cent. In March 2010, the assets invested in Xetra-Gold surpassed the €1 billion mark, making this innovative product the top-selling ETC in Germany. In the same year, Xetra-Gold was licensed for public distribution in Great Britain and the Netherlands. While the ETC mainly attracted  private investors in the Netherlands, the UK primarily saw institutional investors interested in Xetra-Gold. 

At the end of 2010, the product had reached the mainstream: according to an independent survey by Quanvest GmbH on investment proposals by banks and investment advisors, 71 per cent of all depository proposals regarding precious metal investments were "Xetra-Gold". As a result, the assets invested in Xetra-Gold doubled to €2.1 billion by the end of 2011. The stability of the still young company did not suffer in any way from its explosive growth: a company rating carried out in March 2012 by the independent rating agency Hoppenstedt, in which figures such as equity ratio, debt structure and return on sales were evaluated, attested the issuer an "excellent creditworthiness". 

From the beginning of 2015, Xetra-Gold rushed from one investment record to the next: while 54.4 tonnes of gold were already stored in the vaults of Deutsche Börse in March, serving the purpose of physically backing the bearer bond, the 60 tonnes mark was exceeded in October 2015. On 12 May of the same year, a decision was announced by the German Federal Fiscal Court which served to further fuel the demand for Xetra-Gold: henceforth, the ETC was to be treated fiscally just like physical gold, i.e. gold coins or bullions. For investors, this means that after a minimum holding period of one year, profits from the sale or redemption of Xetra-Gold are not subject to the withholding tax. 

The following years would be the fastest growing ones in the ten-year history of Xetra-Gold. In April 2016, the 70 tonnes mark was exceeded, quickly followed by the 80 tonnes mark in June. By September, the 100 tonnes mark would be surpassed, equalling an increase of around 70 per cent within only nine months. Growth accelerated even further in 2017: as early as February, over 150 tonnes of gold were already in the vaults, and just in time for the tenth anniversary, gold deposits increased to over 170 tonnes, which is more than 24 times the amount deposited in November 2007 when Xetra-Gold was issued.

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