Allocated vs Unallocated Gold: What’s the Difference?

Allocated Gold is perhaps the type of gold investment that most would think of when considering buying physical gold. Buying specific gold coins or bars for direct ownership is the primary format that we focus on at PhysicalGold.com.

What is Allocated Gold?

Allocated gold is physical gold that is specifically identified and held for its owner. This may consist of particular gold bars or coins that are held separately from the assets of the storage provider.

Investors buying physical gold for direct ownership are therefore generally purchasing allocated gold. The metal can either be delivered to the owner or held on their behalf in secure gold storage.

The defining feature is that the investor owns identifiable physical gold rather than simply having a financial claim linked to the value of gold.

Main Characteristic of Allocated Gold

One of the defining features of allocated gold is its tangible nature and direct ownership. Unlike other forms of gold investment, where you may simply hold a paper claim to the metal, allocated gold provides you with direct title of the physical assets. These assets can be stored in secure vaults, ensuring their safety and integrity, or delivered direct to the purchaser.

Allocated gold: The investor owns specifically identified physical gold. Where it is stored by a third party, the precise legal and custody arrangements should be confirmed in the provider’s terms.

Unallocated gold: The customer generally has a contractual claim against the account provider rather than title to specific bars or coins. This means the financial position of the provider is an additional consideration.

Allocated Gold: Dealers tend to charge a storage fee which includes insurance cover, based on a percentage of the value of the holding. This rate tends to be higher than that of unallocated gold, which benefits from simplicity and critical mass. House insurance policies may need to be increased if investors choose to hold gold at home.

Unallocated Gold: Insurance costs are typically included in the fees charged by financial institutions for holding gold accounts or gold ETFs. This reduces the ongoing burden of insurance costs.

Allocated gold: Direct ownership of physical gold can substantially reduce the type of credit exposure associated with an unallocated account. However, investors using third-party storage may still need to consider the custodian’s security, insurance and contractual arrangements.

Unallocated gold: The customer has a claim against the account provider, so the provider’s financial strength and the terms of the account are important considerations.

Choosing between allocated and unallocated gold depends on what you want your gold holding to achieve. The two approaches can both provide exposure to movements in the gold price, but they differ significantly in terms of ownership, costs, access and counterparty exposure.

Before deciding, it can be useful to consider why you want to invest in gold and which characteristics are most important to you.

The costs associated with each form of gold ownership can differ.

Allocated physical gold is generally purchased at a premium above the underlying gold price. The premium reflects factors including fabrication, distribution and dealing costs and varies according to the type of product and quantity purchased. Investors using professional vaulting may also incur storage and insurance charges.

Unallocated gold can typically be traded without the fabrication and distribution costs associated with individual retail coins and bars. However, investors should consider the full charging structure of the particular account, including dealing spreads, account charges, custody fees or other provider costs that may apply.

For allocated gold, premiums can also vary significantly between products. Our guide to gold coin premiums explains some of the factors that determine the price paid above the underlying gold value.

Tax treatment should be considered separately from transaction costs. Certain UK legal-tender gold coins, including Britannias and Sovereigns, are exempt from Capital Gains Tax for UK investors. You can read more in our gold and silver tax guide.

The ownership structure also affects the type of counterparty exposure involved.

With allocated gold, the investor owns specific physical bullion rather than having a claim for an equivalent quantity of gold against an account provider. This can substantially reduce the credit exposure associated with an unallocated account.

However, using a third party to store allocated gold does not mean that all third-party considerations disappear. Investors should still understand the storage provider’s custody arrangements, security, insurance and contractual terms.

With unallocated gold, the customer generally has a contractual claim against the account provider rather than ownership of particular physical metal. The financial strength of the provider and the terms governing the account are therefore important considerations.

Investors comparing the two structures should consider not only potential movements in the gold price, but also what they legally own, who holds it and what would happen if the provider experienced financial difficulties.

What is the difference between allocated and unallocated gold?

Allocated gold is specific physical gold that is identified and owned by the investor. It may consist of particular gold bars or coins that are delivered to the owner or held on their behalf in secure gold storage.

With unallocated gold, the customer does not own specific bars or coins. Instead, they generally have a contractual claim against the account provider for a quantity of gold.

The key distinction is therefore direct ownership of identifiable physical gold versus a claim against a provider.

Which is safer, allocated or unallocated gold?

The two structures involve different types of risk.

Allocated gold provides direct ownership of specific physical bullion and can substantially reduce the credit or counterparty exposure associated with an unallocated gold account. However, investors storing allocated gold with a third party should still consider the provider’s custody arrangements, security, insurance and contractual terms.

With unallocated gold, the customer has a claim against the account provider, making the financial strength of that institution an additional consideration.

Neither structure removes the risk of the gold price falling.

Is allocated gold the same as physical gold?

Allocated gold is a form of physical gold ownership in which specific bars or coins are identified as belonging to the investor.

Physical gold can be delivered to the owner or stored professionally on their behalf. When using a storage provider, investors should check that their bullion is held on an allocated basis and understand the provider’s custody arrangements.

Can I take delivery of allocated gold?

Generally, allocated physical gold can be delivered to its owner, although this will depend on the terms of the particular storage or custody arrangement.

Physical Gold customers can choose between insured delivery and professional gold storage, depending on the products purchased and their requirements.

Can I take delivery of unallocated gold?

An unallocated gold account does not give the customer ownership of specific bars or coins, so there is no particular piece of gold belonging to the customer to take possession of.

Some providers may offer a process through which an unallocated holding can be converted into allocated physical gold, potentially involving additional charges or minimum quantities. This will depend on the terms of the individual provider.

Is allocated gold more expensive than unallocated gold?

Allocated physical gold can have higher purchase costs because coins and bars are fabricated physical products and are generally sold at a premium above the underlying gold price. Professional storage and insurance costs may also apply.

Unallocated gold can typically be traded without the fabrication and distribution costs associated with individual retail bullion products. However, dealing spreads, account charges and other fees may apply.

The total cost therefore depends on the product, quantity, provider and length of time the gold is held.

Is allocated gold subject to Capital Gains Tax?

Capital Gains Tax treatment depends on the particular gold product rather than simply whether it is allocated.

Certain UK legal-tender gold coins, including Gold Britannias and Sovereigns, are exempt from Capital Gains Tax for UK investors. Other physical gold products may give rise to a taxable gain depending on the investor’s circumstances.

Qualifying investment gold is generally exempt from VAT in the UK. Read our gold and silver tax guide for more information.

Is unallocated gold subject to Capital Gains Tax?

The tax treatment of unallocated gold depends on the particular account or investment structure and the investor’s circumstances. It should not be assumed that every unallocated gold product receives the same tax treatment.

Investors should check the tax treatment of the specific product they are considering and seek professional tax advice where necessary.

Which is more liquid – allocated or unallocated gold?

Both can provide liquidity, but in different ways.

Unallocated gold accounts can often be traded without the need to physically move bullion, which can make buying and selling operationally straightforward.

Widely recognised allocated bullion coins and bars also have an established secondary market. Selling physical gold may, however, involve additional steps such as delivery, collection or verification depending on where and how it is stored.

Liquidity ultimately depends on the product, provider and prevailing market conditions.

Is a gold ETF allocated or unallocated gold?

A gold ETF should not automatically be classified as either allocated or unallocated gold from the investor’s perspective. An investor generally owns shares or securities in the fund rather than individual gold bars or coins.

Some physically backed gold ETFs may themselves hold allocated bullion, but this does not mean that individual shareholders directly own those particular bars.

Read our guide to gold ETFs to understand how they compare with owning physical gold.

Which is better – allocated or unallocated gold?

Neither is automatically better for every investor.

Allocated gold may appeal to someone who wants direct ownership of a tangible asset, a choice of specific coins or bars and the possibility of taking physical possession.

Unallocated gold may appeal to someone primarily seeking exposure to movements in the gold price without needing to own or store specific physical bullion.

The choice depends on factors including investment objectives, costs, access to the metal, tax treatment and the level of counterparty exposure the investor is comfortable accepting.