No-one deposits cash in a bank expecting those very same notes and coins to eventually be returned to them. Conversely, were someone to entrust their family jewels to a safety deposit box, they would be unamused to be offered different jewels, albeit of an equivalent value, when they came to withdraw them.
So what of gold, held on deposit at a bank or in a dealer’s vault? Does the purchaser “own” a specific bar or bars, or a labelled tube of bullion coins, or do they simply hold an entitlement to gold of a certain value?
The simple answer is – it depends. Gold can be either allocated or unallocated, and the difference between the two is profound.
Allocated Gold vs. Unallocated Gold
Allocated gold is the owner’s personal property that happens to be stored away from home. A vault, maintained by a bullion dealer, is a favoured location for allocated gold for the obvious reason of security. But, while allocated gold may be stored away from home, it is earmarked one hundred per cent for the owner, rather than held in a common pool. With allocated gold, a certificate will entitle the owner to a precise allocation of bullion.
Unallocated gold is on loan from the purchaser to the institution concerned. It is a liability of that institution, in the same way that a cash deposit is a liability of the bank in which it is placed. For the duration of the period in which the unallocated gold bullion is held in the vaults, it is the property of the institution. This can be particularly relevant in relation to banks, as the unallocated gold can count towards the “reserves” that it is required to hold in case of emergencies.
Prior to the credit crunch, the danger of gold buyers losing their unallocated bullion as a result of a bank’s insolvency seemed remote. It seems less so now, and gold is not covered by the protection scheme that underwrites cash deposits. Storing unallocated gold outside the banking system, with a trusted bullion dealer would circumvent this danger.
Furthermore, allocated gold is generally a slightly more expensive option. It is important to note that there will be charges for storage and insurance, whereas unallocated gold is often stored for free - although there may be charges for other essential services. What you get in return for this small premium is the peace of mind of knowing that your bullion “has your name on it.”
Purchasing Precious Metals with The Royal Mint
All bullion bought through The Royal Mint’s website is allocated to you. When you buy bullion gold direct from us, you can choose to store it in The Vault®, our secure, onsite storage facility, which is guarded by trained security staff 24 hours a day, 7 days a week, 365 days a year. Your bullion will be always ready to withdraw according to your instructions, and it will be given a serial number which will be fully allocated to you.