Allocated vs. Unallocated Gold: Key Differences

If you decide to store your gold with a secure storage facility, or SSF, you will need to decide whether you want a storage facility that allocates your gold or one that doesn’t.

Allocation refers to how a facility manages your gold and its value. A facility that allocates its holdings guarantees that your actual investment is secure. With unallocated gold, you are essentially buying a share of a pool of gold from a financial institution.

If you don’t care about taking possession of physical gold, then unallocated might be the way to go. However, if you have specific coins or unique items that you want to keep as yours, then you cannot choose an allocating facility.

Let’s look at the considerations about allocated vs. unallocated in more detail.

Key Differences Between Allocated and Unallocated Gold

Ownership and Storage

If it isn’t clear already, allocated gold and unallocated gold are two very different things.

Allocating gold is the procedure by which a dedicated secure facility manages actual pieces of gold that you own and want to keep safe. So, if your precious metals investing involves physical possession of gold, you must go in this direction.

Unallocated gold is more like a stock purchase. You own a share of a bank or financial institution’s collected pool of physical gold. Your investment is for a portion of the gold, but a nonspecific portion.

There’s no wrong answer here. It’s a matter of how you want to proceed with your foray into precious metals investing. In fact, there’s no reason you cannot do both, if you like.

Costs

Now, there is an increased level of care inherent in the notion of allocating gold. Because you are securing and preserving specific pieces of actual gold that you own, there is an additional cost factor that you have to expect.

Most secure storage facilities charge you fees when you first place your gold with them. They may also charge you for the physical effort required to retrieve the actual gold, too. In the interim, they charge a percentage of the value of your stash each year as the maintenance fee for storing your material.

By contrast, you’ll generally pay less to own unallocated gold. Generally, you’ll pay a small premium over the spot price. Then, you’ll have to pay a percentage of your share’s value every year as an ongoing storage fee.

Liquidity

There’s no denying that it’s easier to buy and sell unallocated gold. It’s roughly equivalent to buying and selling a share of stock, as there is no actual transfer of physical gold taking place.

Allocated gold is a bit trickier to move, but it’s not that difficult. You will have to find a buyer for your actual gold and retrieve it from your storage facility, but it’s not as though you’ve invested in a large piece of construction equipment. Still, allocated gold is definitively less liquid than unallocated gold.

Risk Factors

No matter what type of gold you choose, you’re going to shoulder some risk. However, as these two types of investments are so different, their risks are also disparate.

Allocated gold has two primary risk factors. The first is the stickier liquidity we mentioned. If your financial situation or life changes quickly and/or dramatically, you might find yourself hamstrung by an inability to withdraw your value immediately.

The other risk factor is much more elemental. Your physical gold is at risk of being stolen – particularly during the times when it is directly under your own control.

With unallocated gold, the theft risk is much lower, due to the fact that no actual gold moves around when you buy or sell.

However, you are much more susceptible to market risk with unallocated, as the value of your investment is predicated on the going spot price for gold. Any fluctuations in the price of gold can present you with a much less desirable position, which might be a problem for unallocated investors – particularly those looking to make moves more frequently.

Other articles of interest: 

• How to insure gold and silver
• How to store and protect precious metals
• Best way to purchase gold and silver

Conclusion

In short, allocated gold and unallocated gold are for investors with very different goals and needs. Neither set of goals is worse or better – they’re just different.

JM Bullion partners with TDS Vaults to provide secure and fully allocated storage for your gold. Best of all, we provide this opportunity at a fair price to you, and your holdings are always in good hands. Reach out to us if you want to discuss these options further.