Allocated or unallocated? What you actually own

Ask ten owners of gold what they hold and most will answer in ounces or kilograms. Far fewer can answer the more important question: what, legally, do those ounces represent? The answer depends almost entirely on one word in the custody agreement — allocated or unallocated — and the difference only becomes obvious on the worst possible day.

Unallocated: a claim on a balance sheet

In an unallocated account you do not own specific bars. You own a contractual right to a quantity of metal, and the provider owns the metal itself. It can lend it, lease it, or use it to settle other customers’ withdrawals. Your statement shows ounces, but legally you are an unsecured creditor of the provider for the value of those ounces.

That structure has real advantages — it is cheap, it settles instantly, and it suits traders who move in and out of positions many times a day. But if the provider fails, you queue with every other creditor. The metal you thought of as yours forms part of the insolvent estate.

Allocated: bars with your name on them

In an allocated account, specific bars — identified by refiner and serial number — are set aside for you. The custodian holds them as bailee: it looks after property that remains yours. It may not lend them, pledge them or swap them for others. If the custodian fails, the bars are not part of its estate; an administrator’s job is to return them to you.

A good test: could your custodian give you a list of every bar you own, by serial number, right now? If not, you are probably not allocated.

How to check what you have

• Read the custody agreement for the words “allocated”, “segregated” and “bailee”. Phrases such as “pooled”, “fungible” or “metal account” usually signal unallocated holdings.
• Ask for a bar list. An allocated holding comes with one: serial number, refiner, fineness and gross weight for every bar.
• Check whether the custodian may “use” or “lend” client metal. In an allocated arrangement it may not.
• Look at your certificates. An ownership certificate should name you and list the bars, not just a total weight.

Segregation is not the same as allocation

Some providers offer “segregated” storage, which normally means your bars sit physically apart from other clients’ metal — on a dedicated shelf or in a sealed case. That is a physical arrangement. Allocation is a legal one. The strongest position is both: specific bars, legally yours, physically separated and recorded under your name.

At VeloShip Global every holding is fully allocated and recorded bar by bar. Your ownership certificate lists each bar, and you can see the same list in your portal at any time. When metal changes hands, we issue a change-of-ownership certificate to both parties and a fresh ownership certificate to the new owner — so the paper always matches the shelf.

When unallocated still makes sense

None of this means unallocated accounts are wrong. For short-term trading, for hedging, or for amounts small enough that bar-level ownership is impractical, they can be the right tool. The mistake is holding long-term wealth in an unallocated account while believing it is something else. Know which you have, and choose deliberately.

What happens if the custodian fails

The difference between the two models is starkest on the worst day. If a provider of unallocated accounts becomes insolvent, account holders are generally unsecured creditors: they rank alongside everyone else the firm owes money to, and they receive whatever share of the remaining assets the administrator can distribute, often after months or years. The metal the firm held was its own property, and it forms part of the estate.

Allocated metal is treated differently because it was never the custodian’s property in the first place. Provided the records clearly identify which bars belong to which client, an administrator should return them to their owners rather than sell them for creditors. That proviso is why the quality of the bar list matters so much: title depends on evidence, and evidence depends on records that were accurate before anything went wrong.

Reading the paperwork

The account terms usually tell you which model you are in, even when the marketing does not. Words such as “pooled”, “fungible”, “metal account” or “credit to your balance” point towards unallocated. Words such as “specific bars”, “bar list”, “title remains with the client” and “the custodian holds as bailee” point towards allocated. If the agreement allows the custodian to lend, lease or rehypothecate your metal, it is not allocated in any meaningful sense, whatever the brochure calls it.

• Ask for the clause that describes who owns the metal, not the one that describes how it is stored.
• Check whether the bar list is part of the contract or merely provided “for information”.
• Look for any right of the custodian to substitute bars without your consent.
• Confirm which law governs the agreement and where any dispute would be heard.

None of these questions is unusual, and a custodian that holds metal properly will answer them in writing without hesitation.