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Allocated vs. Unallocated Gold and Silver: Ownership vs. a Credit Claim

Four Ways to Gain Exposure to Gold and Silver

For anyone seeking exposure to gold or silver, four distinct routes exist. Each connects the investor to the metal, yet they differ sharply in legal status, risk, and the nature of the claim involved. These differences are not semantic. They determine what the investor actually owns and what happens if the intermediary fails.

1. Allocated Bullion: Ownership of a Defined Quantity of Vaulted Metal

Buying allocated bullion means acquiring legal title to a clearly defined quantity of gold, silver or other precious metal held in vault custody. The metal is held on the investor’s behalf, and the investor is recognised as its legal owner.

This can take the form of individually identified bars or coins assigned by serial number and other details. That level of identification is not, however, essential to allocated status. For example, an investor holding shares (or tokens) in a vehicle backed by allocated metal could acquire ownership of allocated gold even if no single bar is earmarked exclusively for that investor. What matters is that a specific quantity of metal is owned, not merely claimed.

2. Segregated Bullion: Ownership of a Particular Physical Item

Segregated bullion goes one step further. Here the investor owns not only a defined quantity of metal but a specific, identifiable bar or coin distinguished by its unique serial number, weight and fineness. That item is stored apart from all other metal—often in a dedicated compartment or room, marked with the client’s name or account reference—and remains untouched until the owner issues instructions to move or withdraw it.

This is the purest form of physical ownership: the bar belongs to that investor alone. Segregation removes any possibility of substitution or commingling, though the extra administrative and storage costs usually attract a premium.

3. Unallocated Bullion: a Contractual Claim, not Ownership

With unallocated metal the buyer acquires no title to any particular gold or silver. The buyer receives only a contractual claim against the seller for a stated quantity. The metal stays on the institution’s balance sheet as part of its general pool, and the buyer ranks as a creditor of that institution.

4. Gold or Silver Futures: an Agreement to Buy at a Future Date

Gold and silver futures contracts are standardised, exchange-traded agreement to buy a specified quantity of bullion at a predetermined price on a set future date. Physical delivery is possible under the contract terms, but most positions are closed or cash-settled before delivery occurs.

The Central Distinction

The core difference between allocated and unallocated bullion lies in the legal framework—owner versus creditor, ownership versus a delivery claim—rather than in the physical method of storage. Allocated status primarily signals ownership, not physical isolation. What matters is whether the client holds legal title to a defined quantity of metal or only a contractual claim against the custodian for that quantity. The arrangement inside the vault is secondary to the legal relationship.

Retail vault operators often emphasise the visual side of security—photographs of reinforced bunkers, biometric doors, armed guards—while saying comparatively little about the contractual details. Visual reassurance is easy to market; the legal structure is less photogenic.

Allocated vs. Segregated Bullion: What’s the Difference?

The terms allocated and segregated are frequently confused. As of this writing, the first search result for “allocated gold meaning” reads as follows: “Allocated gold means you hold direct, legal ownership of specific physical gold bars or coins stored in a professional vault under your name. Each item is uniquely identified by serial numbers, weight, and purity, keeping your metal separate from the custodian’s own assets.”

This cannot, of course, be the case when one considers certain investment vehicles for allocated bullion, such as gold tokens, where one can buy as little as 0.00001 grams of allocated gold. How would it be possible to apply that definition of allocated gold to such a minuscule quantity?

The difference between allocated and segregated is less consequential than the difference between allocated and unallocated, because it does not alter the fundamental legal relationship between the metal and the investor. It concerns only the storage arrangement. Segregated metal is kept physically separate from all other bullion, often in a dedicated compartment or room. Allocated metal need not be.

Because allocated status requires only that a defined quantity of metal is held for its owner, fungibility can operate. Provided the custody agreement allows it, the custodian may replace one bar with another of the same fineness. Gold and silver of identical purity are fungible: one gram is economically interchangeable with any other gram of the same standard.

Segregated status goes further. It requires that particular, individually identified items—and only those items—are held for the owner. The metal cannot be touched or substituted without the owner’s explicit permission. An agreement permitting substitution would defeat the purpose of segregation.

A common definition of what allocated means runs along these lines (or something similar): “Allocated title means the metal is recorded as belonging to the investor rather than forming part of a general pool.” Such definitions are not wrong in the same way as the one quoted above, but they can nevertheless be misleading because they still suggest that specific items of metal are allocated to a specific investor (in the same sense as segregated metal).

In reality, allocated does not necessarily mean that specific pieces of metal are assigned to a specific investor. It can instead mean that the investor owns a defined quantity of metal within a larger pool stored for all the investors in that particular investment vehicle. That pool is kept separate from other bullion.

Allocated Means Ownership; Unallocated Means a Credit Claim

The holder of an allocated gold or silver account becomes the legal owner of specific physical metal held in the client’s name. The relationship with the custodian or account provider is one of bailment. The custodian acts as bailee, holding the metal without taking title and without any right to lend, lease, rehypothecate or otherwise deal in it for its own account.

Because the metal does not appear on the custodian’s or account provider’s balance sheet, counterparty risk is limited. In an insolvency the allocated metal is treated as the client’s property and is returned outside the bankruptcy estate.

Unallocated balances work differently. The holder has a contractual claim for delivery of a stated quantity of gold or silver. In effect the holder possesses an IOU denominated in gold or silver against the account provider and ranks as an (usually unsecured) creditor of the institution. That status places the holder in the same queue as other ordinary creditors if the institution fails. Any metal that backs the claim sits on the provider’s balance sheet and may be deployed as the provider sees fit. The client remains an unsecured creditor.

In short, from the legal standpoint of ownership, the mere presence of bullion inside a vault does not decide whether an account is allocated or unallocated, nor does it determine the risk the investor actually bears. What decides the matter is the contractual framework. If a custodian simply records an obligation to deliver a certain quantity of metal and carries that liability on its books, the client’s rights rest on that contractual promise—whether or not matching metal happens to sit in the vault at any given moment.

Conversations that fixate on the question “Are the bars really there?” miss the more decisive points: how title is transferred, how the client’s entitlement is recorded, whether the metal is held for the client or owned by the custodian or account provider, and what happens to that entitlement if the latter becomes insolvent. Legal documentation matters more than photographs of vault doors. A bar behind steel does not, by itself, establish who owns it.

Unallocated remains the efficient, low-cost, high-liquidity default of the professional London market and of most bank gold accounts. Allocated storage—or, more carefully, fully segregated storage accompanied by independent audit and clear title—is the arrangement preferred by investors whose primary objective is ownership of physical metal free of material counterparty risk.

Allocated and Unallocated Gold According to Basel III

Regulatory treatment under Basel III reinforces the distinction. Contrary to a widespread belief, the framework does not assign gold to any capital Tier. What it does provide is a 0 % risk weight for gold bullion held by the bank itself or held in another bank on an allocated basis (to the extent backed by bullion liabilities). No equivalent gold-specific 0 % risk weight is available for unallocated gold. The latter is treated as a counterparty exposure, and the applicable risk weight is determined by the nature and creditworthiness of the counterparty.

Basel defines a bank exposure as “a claim … on any financial institution that is licensed to take deposits from the public and is subject to appropriate prudential standards…”, and then it specifies how those bank exposures are risk-weighted. (www.bis.org)

This is why an unallocated gold balance that constitutes a contractual claim against a bullion/banking institution is fundamentally different from allocated bullion that the bank actually owns.

The Galaxy of Unallocated Gold and Silver

Unallocated accounts dominate the wholesale and professional market. According to the London Bullion Market Association, more than 90 percent of precious metals traded on the interbank, wholesale and over-the-counter market clear over unallocated Loco London accounts. Industry participants estimate that less than 1 percent of the gold traded within financial markets is allocated. The unallocated format suits institutional trading, hedging and speculation because transfers can be executed quickly and in any quantity without the need to identify and move specific bars.

Storage costs are typically low or zero; the institution can use the metal for its own lending, trading or working-capital purposes. Liquidity is correspondingly high. Banks, particularly the bullion banks that make markets in London, default to unallocated accounts. Dedicated vault operators and specialist platforms, by contrast, more often offer allocated or fully segregated storage.

Geographically the pattern is consistent. In London, the Loco London system that underpins the global OTC market is overwhelmingly unallocated for clearing and wholesale trading. Allocated holdings are more common among private investors who prefer to keep metal outside the banking system, often in jurisdictions such as Switzerland, Singapore or the United States where private vault facilities are well established and legal frameworks have traditionally given strong protection to private ownership. Retail bank gold accounts and pool programmes in many countries continue to default to unallocated or similar pooled claims. Central banks, by contrast, generally prefer allocated metal for their reserves precisely to eliminate credit exposure to commercial institutions.

Basel III’s treatment of unallocated gold liabilities has increased the funding cost of large unallocated books and has prompted some banks to restructure parts of their precious-metals operations. Even so, the wholesale market remains heavily unallocated.

LBMA and London: The Center of the Global Unallocated Bullion Market

The London Bullion Market Association sits at the centre of any discussion of unallocated gold accounts because it is not merely a participant in the market; it is the body that designed and continues to operate the framework that has made unallocated trading the global norm. The LBMA is the trade association responsible for coordinating standards in the world’s largest over-the-counter market for gold and silver. It does not itself buy or sell metal. Its role is that of standard-setter and facilitator for the London market.

The Infrastructure of Unallocated Trading

The practical machinery that keeps unallocated accounts as the default instrument is provided by the LBMA together with its member banks. Clearing and settlement run through London Precious Metals Clearing Limited (LPMCL), a system operated by a small group of those member banks. Trades are netted and settled on a book-entry basis. This is the plumbing through which the great majority of wholesale gold and silver transactions pass.

Within that system the overwhelming volume of London’s precious-metals business is settled on an unallocated basis. Industry estimates place the share of paper claims within unallocated accounts at well over 90 percent—some figures put it above 95 percent—rather than transfers of specifically identified physical bars.

Setting the Global Price

The same market also produces the price that the rest of the world treats as the benchmark. The twice-daily LBMA Gold Price (still often called the London Fix) is the reference used for central-bank reserve valuations, mining contracts, and the net asset values of gold ETFs worldwide. That price is the price of unallocated gold.

In other words, the London bullion market—home to the benchmark that appears on screens as the global spot price—operates fundamentally on unallocated trading. The daily fix does not reflect a matching of physical bars changing hands; it reflects the exchange of claims and promises.

When this is set alongside the second major centre of price formation, New York’s COMEX, the picture becomes clearer still. COMEX is a futures market in which physical delivery is the exception and the large majority of positions are closed out or cash-settled. The combination of these two venues leads a number of market observers to conclude that the prevailing price-discovery process for gold and silver is structurally distant from the physical market. The quoted price is shaped primarily by the interplay of promises to deliver and claims to receive, rather than by the direct meeting of physical supply and physical demand.

Participants

Clearing of most OTC and wholesale precious-metals trades takes place through unallocated accounts at LPMCL. The clearing members in recent years have included HSBC, ICBC Standard Bank, JPMorgan, UBS and, more recently, Citi.

The primary liquidity providers and market-makers are the bullion banks—specialised financial institutions that quote two-way prices and handle trading and clearing. The LBMA maintains a list of market-making members obliged to provide continuous quotes; the names include the major global banks already mentioned.

Their clients for these unallocated accounts are almost exclusively large institutional participants: central banks managing reserves or engaging in lending and leasing, other bullion banks adjusting their own books, commercial hedgers such as mining companies and refiners, and financial institutions including hedge funds, pension funds and the authorised participants that create and redeem ETF shares. Institutions that are not themselves clearing members normally hold unallocated sub-accounts with one of the clearing banks.

China’s Bullion Investment: A Shift Toward Allocated Gold

Commercial banks remain the main providers of gold investment in China. The accounts they offer form a mixed picture, historically weighted toward unallocated products.

Chinese commercial banks, especially the large state-owned institutions, have long served as the primary retail channel for gold. Account gold or paper gold products—bank-quoted, non-physical claims—proved popular for years because of their low cost and convenience. These products functioned in much the same way as unallocated claims: the customer held a balance denominated in grams against the bank rather than title to any specific metal.

Even when the accounts themselves confer no ownership of gold, a redemption route is widely available and frequently used. Gold Accumulation Plans offered by the banks allow customers to build holdings that can later be redeemed for physical metal.

Retail activity is now being steered away from leveraged and unallocated paper products. In the first quarter of 2026 major banks including ICBC, Postal Savings Bank, Ping An, China Guangfa and others ended or sharply restricted their intermediary services for Shanghai Gold Exchange-linked precious-metals trading, covering both spot and deferred contracts. The stated reason was risk management after periods of volatility; the practical effect has been to channel retail demand toward physical ownership, gold accumulation plans and exchange-traded funds rather than leveraged paper exposure.

Despite the continued presence of unallocated paper products, a structural shift is visible when one looks at the two principal trading centres for precious metals in China—Shanghai and Hong Kong.

The Shanghai Gold Exchange operates on a model in which physical delivery is the default and the standard. This stands in clear contrast to Western markets such as COMEX, where physical delivery remains the exception.

Hong Kong’s newer clearing platform functions as an Asian-time-zone system with stronger physical links than pure London-style unallocated trading. It is being developed to support institutional-grade gold trade and aims to anchor benchmarks more closely in physical metal, thereby offering a counterweight to London’s paper-based price. Its clearing mechanics still incorporate unallocated settlement accounts for operational efficiency, much as London does. Nevertheless the design intention is to create a price reference grounded in physical metal and to reduce reliance on the London system, illustrating that even at the level of institutional infrastructure a deliberate movement toward more physically oriented models is under way.

In summary, the Chinese gold market operates as a dual system:

1. A retail market that was historically driven by unallocated products and speculative trading, but is now being actively guided by regulators and banks toward safer, physical forms of investment.
2. An institutional and sovereign market that remains focused on the accumulation and trading of physical gold, with government and state-linked institutions constructing the supporting infrastructure for that priority.

While unallocated accounts continue to exist, the prevailing direction in China—especially at the state and institutional level—is a clear movement toward physical gold.

Gold and Silver ETFs: Allocated or Unallocated?

Sprott Physical Gold Trust (PHYS): “Investing in PHYS offers several compelling reasons: you benefit from fully allocated gold…”

WisdomTree Physical Gold (PHAU): “WisdomTree Physical Gold is backed by physical, allocated Physical Gold held by HSBC Bank plc (the custodian). Only metal that conforms with the London Bullion Market Association’s (LBMA) rules for Good Delivery can be accepted by the custodian. Each physical bar is segregated, individually identified and allocated.”

SPDR Gold Shares (GLD): “An allocated account is an account with a bullion dealer, which may also be a bank, to which individually identified gold bars owned by the account holder are credited. The gold bars in an allocated gold account are specific to that account and are identified by a list which shows, for each gold bar, the refiner, assay or fineness, serial number and gross and fine weight. All of the Trust’s gold is fully allocated at the end of each business day.”

Bullion-backed exchange-traded products (ETPs) more often than not present their offerings as investments in allocated gold, leaving investors with the impression that buying the shares makes them bullion owners—on the reasoning that if allocated bullion implies ownership, then purchasing allocated bullion must confer ownership. The gold that backs these shares is indeed held in allocated form. The decisive question, however, is: allocated to whom?

The description, for example, of the Invesco Physical Silver ETC is clear about it: “The ETC will use a “swing bar” approach, whereby silver bullion equal to at least the full value of the certificates will be held in an allocated account in the name of the issuer“—the issuer being Invesco Physical Markets PLC itself.

With regard to ETFs in particular—the most important exchange-traded products in the precious metals space—investors should be aware that ETF shareholders are buying an interest in bullion that is, and remains, allocated to — and thus ownership of — the trust. The bullion is the property of the trust, not of the individual shareholders. Once metal is delivered by an authorised participant into the trust it becomes an asset of the trust; no other party has a claim on it. Shareholders hold only a fractional, undivided beneficial interest in the trust’s assets. That interest is a legal claim of a different character from direct ownership of physical bars.

Referring specifically to GLD, the U.S. Securities and Exchange Commission (SEC) makes a statement that applies to most gold and silver ETFs, as it describes the architecture common to this type of product: “Once the gold is transferred from the AP to the Trust it becomes the property of the Trust, with no ties to any other entity, meaning no one else can make a claim on that gold under any circumstances.” (www.sec.gov)

The GLD prospectus is equally explicit: “An allocated account is an account with a bullion dealer, which may also be a bank, to which individually identified gold bars owned by the account holder are credited. The gold bars in an allocated gold account are specific to that account and are identified by a list which shows, for each gold bar, the refiner, assay or fineness, serial number and gross and fine weight. All of the Trust’s gold is fully allocated at the end of each business day. The Custodian provides the Trustee with regular reports detailing the gold transfers in and out of the Trust’s allocated account at the Custodian and identifying the gold bars held in the Trust’s allocated account at the Custodian. Gold held in the Trust’s allocated account is the property of the Trust and is not traded, leased or loaned under any circumstances.”

By contrast, certain issuers of gold tokens state that token holders become the owners of the underlying bullion. For example, Pax Gold: “If you own PAXG, you own the underlying physical gold, held in custody by Paxos Trust Company”; Tether Gold: “Tether Gold (XAU₮) is a token that provides you ownership of real physical gold.”

In short, according to the statements cited above, holders of GLD or IAU shares do not own the physical metal directly, whereas holders of PAXG or XAUt tokens do — with one important caveat: the token issuers’ claims describe their own legal structures; they are not independent legal findings. Whether those claims would fully survive insolvency, regulatory challenge, or cross-border enforcement is a separate question that the cited documents themselves do not settle.

In other words, the fact that metal is described as allocated does not, by itself, tell an investor who holds legal title. In the ETF structure, the allocation is to the trust, while the shareholder holds a beneficial, fractional interest. In the token structures cited above, the issuers assert that the allocation runs directly to the token holder. The documents therefore support a distinction in the nature of the investor’s claim, even though both types of product may describe their underlying metal as allocated.

(* I am an interested observer, not a financial or legal expert. As always, keep an eye on the bold notice in the website footer. If you use or reference this article, kindly credit the source.)