Should You Buy Allocated or Unallocated Bullion?

Precious metals investing has always been one of the most secure investment vehicles for the wealthy – as well as those with enough cash to buy and hold. Gold and silver have intrinsic value that is largely independent of the economic climate. Of course, there are other highly-regarded precious metals, such as palladium, rhodium and platinum, which feature strongly in industry and tend to become more valuable as industrial demand increases.

Make no mistake, however – gold bullion is still the “gold standard” when it comes to precious metals investing and it is incumbent on each investor to familiarize themselves with all the options when it comes to buying and trading gold.

Allocated Gold Bullion

There are two primary options when it comes to investing in gold: the allocated route or the unallocated option. Understanding the differences between the two will help you identify which one is best for you.

Allocated gold, in short, is the closest thing you can get to physically owning a slice of gold bullion without taking possession of it. Indeed, you do own the gold in every sense of the word, except it is stored off-premises in the vault of the presiding company. For obvious safety reasons, many investors feel uncomfortable with storing a substantial amount of gold in their residence.

The term allocated, as applied to your gold, references the fact that it’s spoken for; there’s a unique serial number, of which you are the sole owner. The bank or other official party is merely keeping it for you – for a fee. Most importantly, should the bank become incapacitated or insolvent for any reason, the allocated gold cannot be used to pay off creditors or anything else. In other words, you truly own the precious metal and your interests are independent of the bank’s liabilities.

An example of some of the uses of allocated gold is a gold IRA account, which is a retirement savings account that is used to hedge against inflation. It holds gold coins or bullion and belongs to you. The custodian or trustee is legally obligated to secure it for you.

The Particulars of Unallocated Gold

Unallocated gold, on the other hand, is the property of the bank or other financial institution. Although you have title to the gold for which you are paying or have paid for, it is considered a part of the bank’s reserve – which makes you more of a creditor than an owner. Keep in mind that a bank is a lending institution; as a result, they employ people’s money for lending purposes (which is why your account accrues interest; they’re paying you to use your money).

However, the major difference between allocated vs. unallocated gold is that the latter can be lost as a result of insolvency. If the bank goes under, then your unallocated gold may be used to help pay off its debts or other financial obligations. Ultimately, this understanding is crucial in light of the fact that banks tend to try hard to convince investors to opt for unallocated gold over allocated gold.  It isn’t often that a bank in the U.S. goes under, but when it does, you could lose your unallocated gold investment.

For this reason alone, a wise investor chooses gold allocation every time over unallocated bullion.