Choosing between allocated and unallocated gold bullion investing, what may fit your needs best depends on your investment goals. If you want to own specific bullion items, allocated may work best for you. Unallocated bullion may suit your needs if you are primarily interested in “playing” the market.
Allocated Gold Bullion
When you purchase allocated gold, you are buying specific items. Whether bars or coins, each piece of gold is unique, often identified by a serial number, weight, fineness, and sometimes even the manufacturer’s or mint’s name. The details of these bars or coins are recorded and allocated specifically to you.
The gold is typically stored in a professional bullion vault. The crucial aspect here is that your gold is stored separately from other gold and is identifiable as your property.
When you purchase allocated gold, you will receive documentation that details the specifics of your gold, including serial numbers and the purity of each item.
Types of Allocated Gold Bullion
Gold Bars: You might own one or many gold bars with specific serial numbers. These can vary in size, from small 1-ounce bars to large 400-ounce London Good Delivery bars.
Gold Coins: These can include coins like American Gold Eagles, Canadian Maple Leafs, or South African Krugerrands. Each coin is considered a specific unit and is allocated to you.
Unallocated Gold Bullion
Unallocated gold bullion represents a different approach to investing in gold compared to allocated gold. When you invest in unallocated gold, you do not own specific, individual bars or coins. Instead, you have a claim on a certain amount of gold that is part of a larger pool of gold held by the bank or financial institution.
Your investment is essentially a share in a large reserve of gold. The gold in this pool is not segregated and does not have your name on it. It’s collectively held and managed by the institution.
Unallocated gold is often more liquid compared to allocated gold. It’s easier to trade, buy, or sell because you are not dealing with specific physical bars or coins.
Unallocated gold is often used by investors who are more interested in the price movements of gold rather than owning physical gold. It’s also used by those who wish to avoid the higher costs associated with storing and insuring physical gold.
Types of Unallocated Gold Bullion
Gold Accounts: Many banks and financial institutions offer gold accounts where you can buy and sell gold without taking physical delivery. The gold in your account is unallocated, and you own a certain amount of it, typically denominated in ounces or grams.
Gold Funds or ETFs: Some gold exchange-traded funds (ETFs) may hold unallocated gold. These funds pool the money from many investors to buy gold, and the investors own shares in the fund rather than the gold itself.
Comparing Allocated and Unallocated Gold Ownership
|No Direct Ownership
|Held at Home or Storage Facility
|Provided by the Bank or Service
|Possible Counterparty Risk
|Possible Counterparty Risk
|Direct or Limited Access
|Personal Insurance or Provided by Service
|Less Expensive than Personal Insurance
Whis is Better for Investors?
The choice between allocated and unallocated gold bullion as an investment depends on the individual investor’s goals, risk tolerance, and preferences. It is also common for investors to hold a mix of both allocated and unallocated gold to balance the benefits and risks of each type.
If you prefer a safer, tangible asset and are willing to pay higher fees for peace of mind, allocated gold may be better. Unallocated gold could be more suitable if you are comfortable with some level of risk and prioritize liquidity and convenience.
For long-term, conservative investors who value the security of physical ownership, allocated gold is often preferred. Unallocated gold might be a better choice for those looking for a more fluid investment to take advantage of market movements.
Consider the costs associated with allocated gold, such as storage and precious metal insurance. Unallocated gold’s lower costs could be more appealing if cost is a concern.
Active traders may prefer the flexibility of unallocated gold, while those less active in managing their investments may favor the simplicity and stability of allocated gold.
This gold is typically stored in a professional bullion vault. The crucial aspect here is that your gold is stored separately from other gold and is not a part of the vault’s balance sheet. It’s segregated and identifiable as your property.
Unallocated gold is often held by banks or large financial institutions. These institutions manage the storage, security, and insurance of this gold. The gold is typically stored in high-security vaults, often alongside other precious metals and assets.
Allocated gold bullion offers the security of owning specific physical gold, its liquidity is generally lower than unallocated gold or other more liquid assets. Converting allocated gold into cash can be more time-consuming and might involve additional steps and costs. However, it remains a relatively liquid asset compared to other tangible investments, like real estate, and can be sold relatively quickly in most market conditions.
Unallocated gold offers high liquidity. It is easier and quicker to sell or trade because you are not dealing with specific physical items. However, you do not have the option to take physical delivery of specific gold bars or coins, as you do with allocated gold.
Since you have ownership of specific pieces of gold, in the event of the vault or the dealer’s insolvency, your investment is safer compared to unallocated gold. Your gold is not on the company’s balance sheet and cannot be claimed by its creditors.
Since the gold is not allocated to you specifically, it’s part of the institution’s balance sheet. This means in the event of the institution’s bankruptcy or financial trouble, your investment could be at risk.
To access your allocated gold, you generally need to schedule a visit with the storage facility. This is for security reasons and to ensure that personnel are available to assist you. Depending on the terms of your storage agreement, you may have the option to take physical possession of your gold. This may involve logistics, insurance considerations, and potential transportation costs.
Unallocated gold is often held by banks or large financial institutions. These institutions manage the storage, security, and insurance of the gold. The gold is typically stored in high-security vaults, often alongside other precious metals and assets. Investors do not have access to the gold bullion.
Audits and Oversight
Audits are conducted to verify the existence, quantity, and quality of the allocated gold bullion. They ensure that the gold you own is indeed in the vault and matches the records in terms of weight, purity, and serial numbers.
Some vaults and storage facilities allow you to physically inspect and audit your gold. This might be important for investors who want to verify the condition and presence of their investment periodically.
Regular and transparent audits are crucial for maintaining trust between the investor and the storage facility. They provide peace of mind that the gold is being properly cared for and is not at risk of being lost, stolen, or tampered with.
In some jurisdictions, audits are not just a matter of security and trust but also a legal or regulatory requirement, particularly for large investments or for institutions that manage investments for others.
In unallocated gold, you own a share of a larger pool of gold rather than specific, individually identified bars or coins. Therefore, audits are not about verifying individual pieces of gold but rather about ensuring the overall quantity and quality of the pooled gold reserve.
The main purpose of these audits is to confirm that the financial institution holding the unallocated gold has enough physical gold in its reserve to back the shares owned by all its clients. These audits help ensure that the institution is not over-leveraging or misrepresenting its gold holdings.
Audit reports for unallocated gold will typically indicate the total quantity of gold held and whether it meets the requirements to cover the unallocated gold positions held by clients. Investors usually have access to these reports, either directly or through publicly available documents, especially if the institution is publicly traded or heavily regulated.
In many jurisdictions, financial institutions offering unallocated gold investments are subject to regulatory oversight, which can include requirements for regular audits and public disclosure.
Unallocated gold bullion is a more cost-effective and liquid way to invest in gold, but it comes with higher risks, especially in terms of counterparty risk, as compared to allocated gold bullion. It is ideal for investors more interested in the speculative aspect of gold investment rather than those seeking the security and physical ownership of specific gold bars or coins.