Unallocated Gold

While allocated gold becomes your physical, ‘allocated’ property when purchased, unallocated gold is gold in which you invest, but do not actually own. It remains the property of the bank or organisation, and makes up their physical liquid reserve to be sold off in times of a liquidity crisis in the event that the bank does not have enough cash to satisfy the demand for withdrawals.

It is essentially an agreement between an institution and an investor built on the promise, or premise, that your money is secured by a gold reserve. While it is cheaper than allocated gold, as there are no storage costs, the risk is much higher. The transaction counts as a gold deposit, so the investor is counted as a creditor to the value of the amount invested, rather than the owner of a specific piece of gold. In the event of a liquidity crisis, the gold would be sold off in order to find the funds needed compensate the organisation’s creditors and you would likely lose a lot of money.

Furthermore, unallocated bullion investors do not benefit from deposit protection from the government, so is actually less secure than a cash deposit in times of crisis, contradicting gold’s important use as a low-risk, safe investment. Surprisingly, despite its risky nature and the lack of security that it can offer, unallocated gold is a far more common choice than allocated gold.

Despite this, for the additional security and peace of mind that it is able to offer, we would always recommend that investors put their faith in the one method they can trust not to become insolvent- allocated gold bullion bars and coins.