Unallocated Gold
Also: Unallocated Gold, Book Gold, Paper Gold
Unallocated gold refers to a gold claim against a bank or provider that is not backed by any individually assigned, physically segregated bar or coin.
Whoever buys unallocated gold does not acquire ownership of specific physical bars, but rather a claim against the account-holding institution — comparable to a bank deposit denominated in grams or troy ounces. The provider may pool the deposited gold together with other customer holdings or its own reserves and is only required to return the equivalent value in gold or cash to the investor. The current gold price determines the day's value of the balance.
Allocated vs. Unallocated – the Crucial Difference
| Feature | Allocated Gold | Unallocated Gold |
|---|---|---|
| Ownership status | Physical property | Contractual claim |
| Bar assignment | Clearly identified with serial number | No individual bar |
| Insolvency protection | Right of segregation | Unsecured creditor (default risk) |
| Storage fees | Usually annual | Often free of charge |
| Liquidity | May require lead time for delivery | Immediately tradable |
| Typical providers | Assay card bar depot, precious metal dealers | Banks, gold savings plan providers |
The most important difference lies in counterparty risk: with allocated gold, the precious metal itself provides the security; with unallocated gold, repayment depends on the creditworthiness of the provider. If the bank becomes insolvent, the investor participates as an ordinary creditor in the insolvency estate — deposit protection schemes (legally up to €100,000) do not apply to gold account balances in Germany.
How Unallocated Gold is Traded
Unallocated gold is the standard format in wholesale trading: the London interbank market (LBMA) processes the majority of global gold trading through unallocated accounts. Banks and central banks transfer millions of troy ounces daily without a single bar leaving the vault. The historical gold prices show that the spot price formed in this market is the global price reference for all other gold products.
For private investors, unallocated gold typically appears in the following forms:
- Gold account at a bank – balance in grams or troy ounces, often without a premium, but with counterparty risk.
- Gold ETCs without physical backing – bearer notes that track the gold price but are not necessarily physically secured.
- Some gold savings plan models – monthly savings instalments purchase gold positions as book entries; physical delivery is often only possible from a minimum quantity onwards.
The savings plan calculator can be used to simulate long-term wealth accumulation through regular gold purchases — regardless of whether one invests in allocated or unallocated form.
Tax Treatment
Unallocated gold in a gold account is treated for tax purposes like physical gold: gains from a sale after a holding period of at least one year are income tax-free in Germany (§ 23 EStG — private disposal transaction). For sales within the one-year period, a tax-free allowance of €1,000 applies (total gain from all private disposal transactions; from assessment year 2023, previously €600).
For VAT purposes: insofar as the unallocated gold account qualifies as investment gold — i.e. gold with a fineness of at least 995 ‰ — the purchase is exempt from VAT under § 25c UStG. The exemption applies regardless of whether the gold is held physically or as a book entry. This is not a substitute for individual tax advice.
Risk Profile at a Glance
- Counterparty risk – provider default
- No right of segregation – no access to specific bars
- Leverage possible – providers may sell more gold than they hold (fractional reserve)
- Liquidity advantage – immediate tradability at the spot price
- No storage costs – often the most cost-effective form of gold ownership
In Brief
Unallocated gold is inexpensive and liquid, but carries a counterparty risk that physical gold ownership does not. Those seeking maximum security should prefer allocated gold or physical holdings; those trading short-term or investing small sums benefit from the low costs of unallocated accounts.