Unallocated Gold

Unallocated gold represents a form of gold ownership recorded as a financial liability of the custodian rather than a client-owned physical asset. In this structure, the investor holds a balance measured in ounces of gold, but the specific bars are not identified or reserved. The custodian retains possession and may use the metal for its own trading, hedging, or settlement activities.

Because the gold is part of the custodian’s working inventory, it appears on the custodian’s balance sheet as an obligation to deliver gold upon request. The client’s position exists only as an accounting entry, not as an allocated bar or coin.

Operational Mechanism

Unallocated gold is commonly maintained through book entries within major bullion banks and clearing members of the London Precious Metals Clearing Limited (LPMCL). Balances are updated electronically as transactions occur, without any physical transfer between vaults. This makes unallocated gold the operational standard for large-volume settlements, margin management, and liquidity transfers between institutions.

In such systems, multiple clients share a single pool of metal. The custodian can net or offset positions internally, which supports liquidity and market depth but removes the link to specific bullion.

Accounting and Legal Nature

An unallocated gold account represents a credit relationship rather than direct ownership. The account holder becomes an unsecured creditor of the institution, entitled to delivery of equivalent gold but not to any identified bars. From an accounting perspective, the metal remains an asset of the custodian, while the client’s balance is recorded as a liability.

This model differs from allocated custody in its legal treatment: title does not pass to the holder until physical delivery or conversion into allocated form.

Applications in Institutional Markets

Unallocated gold is integral to interbank clearing, forward contracts, and derivatives settlement. It enables continuous trading and rapid exposure adjustments in the wholesale market. Central banks and bullion dealers may hold operational balances in unallocated form to facilitate short-term settlement or hedging.

However, the structure is not designed for long-term storage or asset protection, as it depends entirely on the custodian’s solvency and liquidity management.

Regulatory and Reporting Aspects

Oversight of unallocated accounts follows frameworks set by the LBMA and the Bank of England’s wholesale market supervision. Institutions apply credit-risk limits and internal audit procedures to control exposure.
Compliance obligations under FATF AML/KYC and OECD due diligence remain in force but focus on transactional traceability rather than segregation of ownership.

Summary

Unallocated gold functions as a transferable claim within the professional bullion market. It supports liquidity and operational efficiency while placing ownership at the level of obligation, not possession. The defining characteristic of this structure is that the metal remains part of the custodian’s balance sheet inventory until converted into individually allocated form.