Unallocated gold is gold held as a balance in an account with a bullion bank or dealer, where the account holder is entitled to a stated weight of metal but does not own any particular bar. The provider keeps a common stock of gold, and each customer's holding is simply an entry in its books. It is the standard way gold is traded and settled between banks in the London market, and it underlies many retail "gold accounts" offered by banks and platforms.
Its opposite is allocated gold, where identified bars are set aside in the customer's name and held in custody. The difference is legal rather than physical: an allocated holder owns metal, while an unallocated holder is a creditor of the provider.
Unallocated gold in plain terms
Think of the difference between renting a numbered safe-deposit box and putting money in a current account. In the box, your belongings sit there untouched, and nobody else can use them. In the current account, the bank owes you a sum, but your notes are mixed with everyone else's and the bank is free to lend them out, as long as it can pay you when you ask.
Unallocated gold works like the current account, only the balance is measured in ounces of gold instead of dollars or pounds. You can buy, sell or move it quickly and cheaply. You can usually ask for real bars to be set aside for you, but until you do, what you hold is the provider's promise to deliver gold, and that promise is only as good as the provider.
How it works in the London market
London, centred on the City of London, is the main hub of the over-the-counter market in physical gold, where prices are quoted "loco London", meaning for delivery in London. Trades between banks, refiners, funds and central banks are mostly settled by moving balances between unallocated accounts rather than by moving metal. The London Bullion Market Association (LBMA) describes the holder of such an account as having a general entitlement to metal and, in law, the position of an unsecured creditor of the account provider.
Transfers between the main banks are cleared through London Precious Metals Clearing Limited (LPMCL), which records the book transfers between its members' accounts. Underneath these balances sit physical bars, mostly large London Good Delivery bars of about 400 troy ounces, held in vaults that include the Bank of England's. The key features of the arrangement are:
- Balances are recorded in fine troy ounces of pure gold, so a holding can be any size, not just multiples of whole bars.
- The provider may use the gold, for example to lend, swap or trade it, provided it can meet withdrawals.
- A holder can usually convert the balance to allocated metal, at which point the provider assigns specific bars, with their serial numbers and weights, to the customer.
Why market participants use it
The main attraction is efficiency. Moving gold between unallocated accounts is a bookkeeping entry that can be made within a day, while moving bars means vault fees, insurance and transport. That makes unallocated balances the natural instrument for settlement of spot trades, forward contracts and lending. Unallocated holdings also tend to carry low or no storage charges, because the provider can earn a return by putting the metal to work.
Central banks use related arrangements. Some place part of their central bank gold reserves on deposit with bullion banks or in gold swaps to earn a return or raise currency, while keeping the bulk in allocated form, often at the Bank of England or at home. Gold counted as monetary gold in official statistics can include unallocated accounts, provided they give the holder the right to demand delivery of physical gold.
Risks and limitations
The central risk is counterparty risk. Because an unallocated holder is a creditor rather than an owner, if the provider fails, the holder generally ranks alongside other unsecured creditors instead of reclaiming bars. Further concerns are:
- Fractional backing. A provider need not hold physical gold equal to every customer balance at all times, so a rush of withdrawals could strain it much as a bank run strains a deposit-taker.
- Limited transparency. Customers rarely see the provider's vault holdings, which has led to calls for independent audits and published reserves, a practice that in crypto markets goes by the name proof of reserves.
- Product confusion. Retail investors can mistake an unallocated account or pooled account for owning bars outright, so terms and conditions about title, segregation and delivery matter.
Investment products differ in how they hold metal. Large gold exchange-traded funds (ETFs) typically keep most of their gold allocated, holding only a small unallocated balance to handle creations and redemptions, and gold-backed tokens such as Tether Gold (XAUT) state that their tokens correspond to allocated bars. Regulation depends on the jurisdiction: in the United Kingdom spot bullion dealing is largely outside the financial services rulebook, while in the United States dealers and gold accounts are supervised mainly under commodities and consumer-protection law. Anyone comparing products should check whether the provider promises specific bars or only a weight of gold.