When we buy gold, many of us want to take physical possession of the gold and store it at home. But not everyone feels that way.
If you decide to buy some gold from a dealer, and have them store the gold for you, you will usually be asked whether you would like your gold to be allocated or unallocated.
What does that mean?
Allocated gold storage.
This means that if you buy a one ounce gold coin, your name will be attached to a particular gold coin which will be placed in a vault, separate from the dealer’s inventory. That specific coin is yours and you will be charged an annual storage fee. If you ever want to take physical delivery of that coin, it will be removed from storage and sent to you.
In this case, a record will be kept that you own one ounce of gold. But you don’t own a particular coin or bar. The dealer simply makes a note of the fact that one ounce of its inventory belongs to you. You just own one ounce of gold, in whatever form. As they don’t have to store a separate coin on your behalf, there will be no storage fee. So buying unallocated gold is the least expensive way in which to buy and own gold.
Should you choose allocated or unallocated storage for your gold?
When it comes to owning gold, the decisions we make are not always entirely rational. If they were, you might want to make your decision based on the following scenarios.
Scenario 1: All is more or less well with the world, economically and politically. You feel comfortable enough to hold your gold in unallocated storage.
Scenario 2: There is economic or political turmoil in the world and you don’t want your gold as part of a dealer’s inventory. If the dealer goes bust, your gold is lost. So you buy allocated gold, or convert your unallocated holdings to allocated holdings.
Scenario 3: Law and order are breaking down and you fear the worst. So you have your allocated holdings shipped to your home, where you store them as a hedge against disaster. When times are that bad, you want your gold within arm’s reach.
That’s a pretty rational and logical way to look at it. Even so, we all make up our own minds on how we wish to store our gold, sometimes regardless of what seems to make the most sense.
And many of us just like the idea of storing our gold at home. It feels good to see it, touch it and know it is close by.
If you do want to keep some of your gold in allocated or unallocated storage, I can recommend BullionVault.