Aaaand It’s Gone: This Is Why You Always Demand Physical

We have said it over and over, we’ll say it again. For all those who for one reason or another would like to boycott the broken markets, yet trade gold in paper form, please understand that all the invested capital is at risk of total loss and can and will be lost, commingled and rehypothecated, not necessarily in that order, with little to zero recourse and the residual claim on liquidating assets pushed to the very end of the queue. Because if Lehman, MF Global, Peregrine, and countless other examples were not enough, here comes Amber Gold: a gold-based investment ponzi scheme out of Poland, in which it is likely needless to say that the gullible investors never had actual possession of the gold. And when they tried, it was gone. All gone.

From the WSJ:

This week’s collapse of a gold-derivatives business that Polish regulators say was a Ponzi scheme has hit tens of thousands of customers, shaken confidence in the effectiveness of the nation’s financial regulation, and is roiling national politics in the European Union’s largest emerging economy.

On Monday, the company, Amber Gold, Sp. z o.o., which sold a gold-indexed investment of its own design and offered higher interest rates than banks, said it was halting operations. It pledged eventually to repay about $24 million it said it owed to roughly 50,000 clients in Poland.

Amber Gold’s 28-year-old founder, Marcin Plichta, who has publicly acknowledged past convictions for misappropriating funds, couldn’t be reached to comment. Amber Gold representatives were also unreachable.

Despite three years of warnings by Poland’s financial authorities that the company was operating without a license, it continued expanding and spent heavily on marketing. Among its businesses, the company launched a budget airline this year to compete with state-owned LOT Polish Airlines SA on domestic and European routes.

The airline, OLT Express, ceased flights last month and the gold fund unraveled this month after renewed government warnings prompted commercial banks to close Amber Gold’s accounts. The company said “the liquidation process will be spread over time,” without specifying when people might get their money back.

On Tuesday, Prime Minister Donald Tusk referred to Amber Gold as “a scheme” and said he ordered his finance minister to convene top financial authorities—including the central bank and consumer protection office—to discuss the company’s demise and the effect on customers. “All signs on heaven and earth suggest that people who put their trust in that company have been cheated,” Mr. Tusk said. He said it is the duty of the state “to move fast enough to protect people from those schemes.”

“I’m shocked at this point and I don’t know what to do,” said a woman in her 40s, who didn’t give her name but said she was an Amber Gold client. “The boss of this company is a very wealthy man and I don’t know who will have the authority to block his wealth so he doesn’t escape.”

Amber Gold has said it has $45 million in assets, including 100 kilograms of gold. For years it hasn’t issued required financial statements, a lapse that draws a small penalty.

What can be said here: same sad story, different day. People preying on the “get rich quick” euphoria (we would call it laziness but the word is just slightly off color) of others, throwing in a symbol of stability (gold), and laundering proceeds to “baffle everyone with bullshit” all the while the regulators confirm that regulation is meaningless, by not doing their job (and in America would have likely been part of the ploy – apparently in Poland they are amateurs). Said prey also thought that if things turned sour they would be able to pull all their “gold” which just has to exist, because someone else has certainly checked, right, after all there are tens of thousands (of confused lambs part of this), ahead of everyone else.

Alas, as with every Ponzi, this “strategy” never works. It didn’t work for the original Ponzi, it didn’t work for Bernie Madoff, and it won’t work for the global capital markets, which are increasingly perceived by everyone as merely the largest and most comprehensive thoroughly legitimized by their broke host governments and corrupt regulators Ponzi scheme ever conceived.

And so, as we said in the beginning, anyone who puts any amount of money in the market should expect to lose all of it. The US government and the Fed may believe that have eliminated risk but instead they have merely magnified it to a point when even a 10 point drop in the Dow Jones Industrial average feels like the imminent advent of armageddon.

Want to play in a rigged, broken casino? Go ahead – and but don’t expect to recovery anything.

For everyone else for whom preservation of capital is more important than gambling, buy precious metals. And get immediate delivery. Because holding a symbolic representation of a flight to safety “asset” via Cede & Co is simply said, idiotic.