Poland’s Amber Gold liquidated

Filed 17 August 2012, 13:35 IST. Every price, volume and forecast below is reproduced as published on that date and is not a current quotation. For how the benchmarks themselves are set, see how gold is priced.

Amber Gold, the Gdańsk company that had taken deposits from the Polish public against a promise of returns backed by gold, was placed into liquidation. The Polish financial supervision authority had previously listed the company as operating without the authorisation required to take deposits, and the collapse left thousands of depositors as creditors of an estate whose assets bore little relation to the obligations recorded against them.

The business had a straightforward proposition and an unstraightforward structure. Customers placed money for a fixed term and were promised a return referenced to gold, at rates well above bank deposits. The company was not a bank, was not covered by deposit guarantees, and, as the liquidation established, did not hold bullion in anything like the quantity its contract book implied.

Why the structure mattered more than the metal

A gold-backed obligation is only as good as the allocation behind it, and there are three materially different arrangements that can all be described in marketing as "backed by gold". In the first, specific allocated bars are held by a custodian against identified claims, the arrangement behind a physically backed exchange-traded fund. In the second, an unallocated claim exists against a pool, which is a credit exposure to the institution holding the pool. In the third, there is a contractual return referenced to the gold price with no metal held at all, which is an unsecured promise with a commodity index attached.

Amber Gold's depositors believed they were in something like the first case. The liquidation indicated they were in the third. That distinction is invisible in a brochure and decisive in an insolvency, and it is the single most transferable lesson in this dispatch.

The regulatory question

The company had appeared on the supervisor's public warning list before the collapse, which raised the question of why deposits continued to be taken afterwards. Two features of the arrangement made enforcement slower than it looks in hindsight: the contracts were framed as commodity purchase agreements rather than as deposits, which put them at the edge of the banking perimeter, and the returns were paid on time for as long as new money arrived, so from a depositor's point of view the warning was contradicted by their own experience.

That combination recurs in this category of failure. A warning list entry is not an injunction, a product described as a purchase is not obviously a deposit, and a scheme paying as promised looks solvent from outside until abruptly it does not.

The record

The company had acquired OLT Express, and the airline's failure preceded its own, which is how a deposit-taking collapse and an aviation story became the same story. Following the money outward from the deposits is what made the structure visible before the liquidation did.

For the same paper-versus-metal question approached from the side where the metal genuinely was allocated, see the ETF section. For the corporate file more generally, see company news.