Allocated vs Unallocated Gold: The Difference That Matters in a Crisis

Most retail investors buying "gold" through a bank or broker are buying unallocated gold — and most do not realise it. The terminology is dry, but the legal and counterparty implications can make the difference between owning bullion and owning an unsecured promise during a financial crisis.

Allocated: specific bars in your name

An allocated account holds specific, serial-numbered bars identified to you. The bullion bank stores them as bailee. They do not appear on the bank's balance sheet. If the bank fails, your bars are returned to you outside the insolvency proceedings. Storage fees are typically 0.10% to 0.50% per year.

• Specific bars with serial numbers
• Off-balance-sheet for the custodian
• Owner's property under bailment law
• Storage fees apply
• Limited substitution rights

Unallocated: a claim, not a thing

An unallocated account is a credit balance denominated in ounces. The bank owes you that quantity but does not segregate specific bars. The position sits on the bank's balance sheet as a liability. You earn no storage fee but you are an unsecured creditor in any insolvency. Many bullion banks operate on a fractional basis, holding far less physical metal than total unallocated claims.

"Unallocated gold is gold for accounting purposes and a deposit for legal purposes. In a crisis the legal definition is the only one that matters." — bullion industry lawyer, Bloomberg interview 2023

The 2012 MF Global lesson

When MF Global failed, customers with allocated commodity positions still faced delays and partial losses because of how the firm had handled segregation. The episode reminded the industry that even legal segregation is only as good as the operational reality. A firm that mixes allocated and unallocated metal in practice creates risk that does not show up on a contract page.

Practical guidance

For positions above $50,000-100,000, allocated storage is generally worth the fees. For smaller positions, ETFs or retail unallocated programs are typically acceptable as long as the investor understands the difference. Sprott's PHYS and the BullionVault model offer middle-ground allocated structures aimed at retail.

What to ask before opening an account

Three questions matter. First, is the metal allocated and identified by serial number? Second, what is the legal jurisdiction of the storage agreement? Third, can you redeem in physical bars at a reasonable size threshold? If any answer is unclear, the account is unallocated regardless of marketing language.

Bottom line: Allocated gold is bullion. Unallocated gold is credit risk wearing a bullion costume. The distinction only matters during the few days a decade when it matters absolutely.