Why is allocated gold and silver important to the investor?

Zubair Bukhari

15th June 2020

Why is allocated gold and silver important to the investor?

When it comes to precious metals investment, it’s essential to make sure you are investing in allocated physical gold and silver bullion.

Otherwise, all counterparty risk falls squarely on the investor, with potentially disastrous financial consequences.

What’s the difference between unallocated and allocated gold?

Allocated gold bullion or silver bullion is fully purchased and owned by the investor, stored in their name in a third party vault or bank. Unallocated gold or silver, however, is only credited to the investor, with the bank or dealer remaining the owner of the gold or silver.

gold_bullion

Unallocated gold

In the case of unallocated gold and silver, rather than actually selling the precious metals to the investor, the bank owes the investor the gold or silver bullion, with the financial institution holding legal title of the precious metals stored in their vaults.

On first glance, the low-cost, convenient storage a bank provides may seem like an attractive proposition to a new investor. However, unallocated precious metals comes with significant counterparty risk, as the financial institution includes the unallocated gold within its liquid reserve.

If a bank runs into any financial trouble, such as a liquidity crisis or bank failure, they hold legal right to sell your unallocated gold or silver to pay their debts. To make things worse, bullion investments are not covered by state-underwritten deposit protection, so government bailouts will not cover your investment.

In other words, your investment provides protection for the banks, with absolutely no protection given to you in return.

Allocated gold

Allocated physical gold bullion and silver bullion, on the other hand, is legally owned by the investor. In the event of financial insolvency, the investor can rest assured they will be able to access their physical gold and silver.

Traditionally, the only downsides of allocated gold bullion and silver bullion were the expensive storage costs and often higher prices, compared to the typically free storage of unallocated gold. In some cases, banks charge as much as 1.5% annually for allocated gold or silver bullion storage.

Kinesis fully allocated gold and silver

Kinesis has eliminated storage fees from allocated physical gold and silver bullion storage.

All storage costs are covered by a share of transaction fees charged across the Kinesis network, and Kinesis’ robust bullion vaulting network spanning eight countries.

How expensive is unallocated gold?

Today, the vast majority of trades conducted every day are made with unallocated gold or silver, such as Gold ETFs and Silver ETFs.

Gold or Silver ETFs, or an exchange-traded fund, are trusts that own physical gold or silver and sell shares that track and reflect the price of gold or silver. However, the investor does not own the precious metals and at no point can they redeem the physical gold or silver bullion.

The price of unallocated gold and silver, known as the “spot price”, is commonly quoted by gold and silver dealers. As allocated gold and silver bullion is expensive to store, the “spot price” is typically lower than the price of allocated gold and silver bullion.

For expert insight into the gold and silver markets from precious metals expert Andrew Maguire have a watch of episode 13 of Kinesis’ fortnightly Youtube show Talking Gold here.

The price of Kinesis gold and silver digital currencies

In a historic moment in precious metals investment, Kinesis is offering allocated gold and silver bullion, with chargeless storage, at a price competitive with the “spot price” for unallocated metals.

In recent weeks, the price of Kinesis’ gold bullion and silver bullion has regularly dropped lower than the “spot price”.

See the spreads on our gold (KAU) and silver (KAG) on the Kinesis Exchange here

How can allocated gold bullion be cheaper than unallocated gold?

Kinesis’ low prices for allocated physical gold and silver bullion are a result of a process called minting. Minting allows Kinesis users to create their own Kinesis gold and silver bullion based digital currencies, KAU and KAG.

Minting drives down the price of gold and silver bullion in the Kinesis Exchange, through reducing the cost of liquidity and tightening spreads.

Find out more about minting with Kinesis here.

We recently successfully passed our first of many bi-annual audits, which reassures Kinesis users that every last gram of physical gold and silver, behind Kinesis digital currencies, is stored safely within the Kinesis bullion vaulting system.

Read up on the results of our latest audit here.

In the past, investors accepted the risk of unallocated gold and silver investment, due to the cheaper price and absence of storage fees.

In an industry first, Kinesis offers allocated physical gold bullion and silver bullion investment at a price competitive with unallocated gold or silver, with no counterparty risk and no storage costs.

A low-cost, allocated physical gold and silver bullion storage solution, with accessibility and value never before seen in the precious metals investment space.