Unallocated Gold
Also: Unallocated gold, Book gold, Paper gold
Unallocated gold denotes a gold claim against a bank or provider that is not backed by an individually assigned, physically segregated bar or coin.
Anyone who buys unallocated gold does not acquire an ownership claim to specific physical bars, but rather a claim against the account-holding institution - comparable to a bank balance denominated in grams or troy ounces. The provider may pool the deposited gold together with other customer holdings or its own reserves, and need only return to the investor the corresponding equivalent in gold or money. The current gold price determines the day-to-day value of the balance.
Allocated vs. Unallocated - the Decisive Difference
| Feature | Allocated Gold | Unallocated Gold |
|---|---|---|
| Ownership status | Physical ownership | Contractual claim |
| Bar assignment | Uniquely identified with serial number | No individual bar |
| Insolvency protection | Right of segregation | Ordinary creditor (default risk) |
| Storage fees | Usually annual | Often free of charge |
| Liquidity | Possible lead time for delivery | Immediately tradable |
| Typical providers | Certified-bar depot, precious metal dealers | Banks, gold savings plan providers |
The most important difference lies in the counterparty risk: with allocated gold the metal itself provides security; with unallocated gold repayment depends on the solvency of the provider. If the bank becomes insolvent, the investor participates in the insolvency estate as an ordinary creditor - deposit protection (statutory up to EUR 100,000) does not apply to gold account balances in Malta.
How Unallocated Gold Is Traded
Unallocated gold is the standard format in wholesale trading: the London interbank market (LBMA) settles the bulk of global gold trading through unallocated accounts. Banks and central banks transfer millions of troy ounces daily without a bar changing vault. The historical gold prices show that the spot price formed in this market represents the global price reference for all other gold products.
For private investors, unallocated gold typically appears in the following forms:
- Gold account with a bank - a balance in grams or troy ounces, often without a purchase premium, but with counterparty risk.
- Gold ETCs without physical backing - bearer debt securities that track the gold price but are not necessarily physically secured.
- Some gold savings plan models - monthly instalments buy gold shares as a book position; physical delivery is often only possible above a minimum quantity.
The savings plan calculator can simulate long-term wealth accumulation through regular gold purchases - regardless of whether one invests in an allocated or unallocated form.
Tax Treatment
Unallocated gold in a gold account is treated for tax purposes like physical gold. In Malta, no capital gains tax is levied on the private disposal of movable assets such as gold - Maltese capital gains tax applies only to specific assets (immovable property, securities, business interests). Gains from the private sale of gold by individuals are therefore generally not taxed, whether the gold is held physically or as a book position.
As regards VAT: insofar as the unallocated gold account is denominated in investment gold - i.e. gold with a fineness of at least 995 - the purchase is exempt from VAT under the EU VAT Directive (Directive 2006/112/EC) as transposed by the Maltese VAT Act. The exemption applies regardless of whether the gold is held physically or as a book position. No substitute for individual tax advice.
Risk Profile at a Glance
- Counterparty risk - default of the provider
- No right of segregation - no access to specific bars
- Leverage possible - providers can 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 cheap and liquid, but carries a counterparty risk that physical gold ownership does not. Anyone seeking maximum security should prefer allocated gold or physical holdings; anyone trading in the short term or investing small amounts benefits from the low costs of unallocated accounts.