Allocated Gold

Allocated gold is gold held by a custodian on behalf of an owner in the form of specific, identifiable bars or coins that are recorded as belonging to that owner. Each bar is listed by refiner, serial number, weight and fineness, and the custodian holds it as a bailee, not as a borrower. The owner has legal title to the metal itself.

The alternative is unallocated gold, where the customer holds only a contractual claim against the custodian for a quantity of gold, and the custodian owns the underlying metal. The difference becomes decisive if the custodian fails.

An allocated account works like a safe deposit arrangement for a specific asset. When a client buys or deposits gold, the custodian sets aside particular bars and issues a bar list identifying them. The bars are stored in a vault, often physically segregated or at least clearly earmarked, and cannot be lent, pledged or used by the custodian for its own business without the owner's consent.

Because the custodian provides a storage service rather than taking a deposit, it charges fees for custody and insurance. Allocated accounts generally earn no interest, since the metal is not put to work. The wholesale market trades mainly in large bars meeting the London Good Delivery standard, each weighing roughly 400 troy ounces; smaller holders may own fractions of bars through pooled structures instead.

In an unallocated account the customer is a creditor. The custodian records a balance in ounces but owns the gold, can lend it or use it in its trading, and owes the customer delivery on demand. This makes unallocated gold cheaper to hold and easier to trade, which is why most activity in the London over-the-counter market settles in unallocated form. It also means that in the custodian's insolvency the customer ranks as an unsecured creditor alongside others, with no claim to specific metal.

The trade-off resembles the difference between keeping cash in a segregated account and holding a bank deposit. Allocation removes counterparty credit risk on the metal, though not the operational risks of the vault, and the owner still depends on accurate record keeping.

Suppose an investor buys 400 ounces of gold at a hypothetical price of USD 2,500 per ounce, a total of USD 1 million. In an allocated account, the custodian allocates one Good Delivery bar, records its serial number and refiner on the investor's bar list, and charges an annual storage and insurance fee. If the custodian later goes into administration, that bar is not part of its estate and can be returned to the investor. In an unallocated account the investor would instead have a claim for 400 ounces, to be met only to the extent the custodian's estate allows.

Central banks hold part of their monetary gold in allocated form, frequently at the Bank of England or the Federal Reserve Bank of New York, and may move between allocated and unallocated holdings to lend or conduct a gold swap. Many physically backed exchange-traded funds state that their gold is allocated and publish bar lists. Private investors, family offices and some tokenized gold products also rely on allocated structures, sometimes evidenced through a warehouse receipt or similar document. Investors seeking tangible stores of value may hold allocated gold alongside other real assets such as timberland, though unlike a forest, a vaulted bar produces no income.

• Allocation is a legal and contractual concept; owners should check that the custody agreement clearly establishes title and bailment.
• Audits and bar list reconciliations are needed to confirm the gold exists and matches the records.
• Storage and insurance costs reduce returns compared with unallocated holdings.
• Physical delivery out of the vault can be slow and costly, and smaller bars may carry a premium.

The broader principle mirrors custody of funds in payments and crypto custody: what protects the owner is not where the asset sits but whether it legally remains the owner's property rather than the custodian's. Historically, gold held this way underpinned the gold standard, where reserves backed national currencies.