In the world of precious metals trading, there are two primary ways to buy and store physical gold or precious metals: in allocated mode or segregated mode. There is also a third mode called “unallocated,” in which no physical gold is involved.
The difference between allocated and segregated storage may seem slight in actual practice, but there is a considerable difference in cost to the owner because of storage fees.
Allocated vs. Segregated Gold
Gold that is purchased and stored as segregated gold is stored for its owner in a physically separate vault from any other physical gold by others. Gold which is stored as allocated gold is also kept in a vault for its owner, but is likely to be sharing space with physical gold belonging to other owners. In both cases, the owner has immediate access to their gold whenever desired, and could readily sell the entire lot or have it delivered to a specified destination at any time.
The only major difference between segregated storage and allocated storage is that segregated gold is stored by itself, and this means that when the owner decides to take delivery or sell those bars of gold, they will literally be the exact same bars of gold that were put in the vault in the first place. Allocated gold bars may or may not be the exact same bars which were put into the vault, but will be the same number of bars, or will have the same actual value as the originals.
No Additional Value from Segregated Gold
Segregated storage increases fees charged to an owner because the precise physical bars must be tracked and monitored throughout the entire duration of their storage. This does nothing to increase the value of the gold, nor does it add any other appeal – it simply affords some level of peace of mind or some sense of security for its owner. In truth, the security measures and the security of the vault itself are generally the same for both segregated and allocated gold storage.
For this reason, gold/silver allocation is by far the most popular option for storage of precious metals. With allocation, security is virtually the same and the account fees are significantly less expensive. Since precise physical bars need not be tracked, and only equivalent value bars need be returned, account costs can be kept low.
Allocated vs. Unallocated Purchases
By contrast, with allocated and segregated gold storage, unallocated gold accounts are much different. Allocated accounts actually store physical gold in secure warehouses and acknowledge your ownership, whereas unallocated gold accounts do not really store physical gold for you.
Investments you make in unallocated gold are used by your account provider to invest in other assets, while promising to return your goal to you, or its equivalent in cash when you choose to sell. Since unallocated accounts don’t really store gold, there is no cost for physical storage, and account charges are very low. However, investing in unallocated gold is far more risky than allocated gold because if your account provider goes bankrupt, you’re left with nothing more than a promise to pay back your gold, along with all the promises made to other clients.