Unallocated Gold

Anyone buying unallocated gold does not acquire ownership of specific physical bars, but 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 with other customers' holdings or its own reserves and need only return to the investor the corresponding value in gold or money. The current gold price determines the daily value of the balance.

Allocated vs. unallocated — the crucial difference

The most important difference lies in the counterparty risk: with allocated gold, the precious metal itself stands behind the claim; with unallocated gold, repayment depends on the provider's solvency. If the bank becomes insolvent, the investor ranks as an ordinary creditor in the insolvency estate — the UK's Financial Services Compensation Scheme (FSCS), which protects cash deposits up to £85,000, does not apply to gold account balances.

How unallocated gold is traded

Unallocated gold is the standard format in the wholesale market: the London interbank market (LBMA) settles the great majority of the world's gold trade through unallocated accounts. Banks and central banks transfer millions of troy ounces daily without a single bar changing vault. The historical gold prices show that the spot price formed on this market is the global price reference for all other gold products.

For private investors, unallocated gold typically appears in the following forms:

1. A gold account with a bank — a balance in grams or troy ounces, often without a purchase premium, but with counterparty risk.
2. Gold ETCs without physical backing — bearer debt securities that track the gold price but are not necessarily physically secured.
3. Some gold savings-plan models — monthly contributions buy gold units as a book position; physical delivery is often possible only from a minimum quantity.

With the savings plan calculator, long-term wealth accumulation through regular gold purchases can be simulated — regardless of whether one invests on an allocated or unallocated basis.

Tax treatment

Unallocated gold in a gold account is treated for tax purposes like physical gold. In the United Kingdom, gains from selling gold may be liable to Capital Gains Tax (CGT) on amounts above the annual exempt amount:

Gain = disposal proceeds − acquisition cost

There is no German-style one-year speculation period. Note, however, that CGT exemption for UK legal-tender coins from The Royal Mint (Sovereign, Britannia, Lunar, Queen's Beasts) applies to those coins themselves — an unallocated account balance does not represent such coins and is therefore generally within the scope of CGT.

On VAT: where 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 (HMRC; in line with Directive 2006/112/EC). The exemption applies regardless of whether the gold is held physically or as a book position. This is no substitute for individual tax advice.

Risk profile at a glance

• Counterparty risk — default of the provider
• No right to segregation — no access to specific bars
• Leverage possible — providers can sell more gold than is held (fractional reserve)
• Liquidity advantage — immediate tradability at the spot price
• No storage costs — often the most economical 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 sums benefits from the low costs of unallocated accounts.