Posted 23rd June 2023

Why Should Investors Only Buy Allocated Gold and Silver?

Kinesis silver and gold bullion

When it comes to precious metals, make sure you only invest in allocated physical gold and silver bullion.

If you don’t, you’ll be subject to major counterparty risk. This could result in potentially disastrous financial consequences.

What’s the difference between unallocated and allocated gold and silver?

Allocated gold or silver bullion is bullion you own outright. Though a bank or third-party vault may hold or store it on your behalf.

With unallocated gold or silver, the bank, dealer, or third-party vault owns the bullion even though you’ve “bought” it. Let’s look in more detail at how this works.


Unallocated gold or silver

If you invest in unallocated gold or silver, you’re not actually buying it. The title of the gold and silver remains with the seller and not you, the investor.

They store the precious metals in their gold and silver bullion vault. In exchange for your payment, this third party legally “owes” you the gold and silver. 

Unallocated gold and silver bullion storage are low-cost and convenient. This makes it seem like an attractive proposition to a new investor. 

However, counterparty risk is a major problem with this type of investment. As your gold or silver is part of the third party’s “liquid reserve”. 

For example, let’s say your bank or financial institution gets into trouble, like a bank failure or liquidity crisis. In this case, they hold the legal right to sell your unallocated gold or silver to pay their debts. 

Even worse, you won’t get protection from government deposit protection schemes. As they don’t cover gold and silver storage schemes, you wouldn’t get compensation or a bailout if the worst happened.

In other words, your investment provides protection for the banks. While you get absolutely no protection in return.

Allocated gold or silver

You own any allocated gold and silver bullion investment outright. It’s yours and you have the title to it. 

If your bank or financial institution goes under, they can’t sell your gold or silver from under you. You’ll always have the legal right to access your physical gold and silver.

Allocated gold and silver bullion often costs more than unallocated bullion as you have to pay for storage. Banks and financial institutions can charge up to 1.5% 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.

We cover the cost through:

  • A share of transaction fees charged across the Kinesis network 
  • Our robust bullion vaulting network spans 15 vaults across 13 cities.

How expensive are unallocated gold and silver?

Most gold and silver trades still need to be allocated. That’s because of the growing popularity of Gold ETFs and Silver ETFs. 

ETF stands for “exchange-traded funds”. They are trusts that:

  • Own physical gold or silver 
  • Buy and sell shares that track and reflect the price of gold or silver

With an ETF, you, the investor, never own gold or silver. At no point can you redeem physical gold or silver bullion? 

Dealers sell gold and silver at something known as the “spot price”. The spot price is often lower than the price of allocated gold and silver bullion. That’s because the spot price factors in the cost of storage.

The price of Kinesis gold and silver digital currencies

Ever since we launched, Kinesis has wanted to shake up the gold and silver market. We now offer allocated gold and silver bullion with no storage charge. 

Even better, the price we offer is competitive with the “spot price” for unallocated metals. From time to time, the price of Kinesis’ gold and silver bullion drops below the spot price.

Take a look at the spreads on our gold (KAU) and silver (KAG) on the Kinesis Exchange.

Allocated vs unallocated gold and silver FAQ

Before you make any gold and silver bullion investment, it’s important to get your questions answered. 

What does bullion mean?

Bullion refers to precious metals like gold or silver. Weight determines the value of bullion. Investors usually buy bullion in the form of bars or ingots. 

Investors and governments want to own precious metals in physical form. That’s because many see bullion as a store of value or a hedge against economic uncertainty.

Can you explain where gold comes from?

There are two answers – the scientific answer and the investor one.

Gold itself is a chemical element. It forms in the intense heat and pressure of the earth’s crust over millions of years. 

You can buy gold from various sources. The most popular are banks, precious metals brokers, and online trading platforms. They get their gold from mines, refineries, and mints.

How much gold or silver should I own?

When diversifying your portfolio, consider the role of bullion. Define your investment strategy first to balance risk and reward. 

Financial advisors recommend that gold or silver should make up 5% to 10% of your portfolio. How much you actually invest depends on you. Consider your risk tolerance, financial goals, and overall investment strategy.

Why is silver important?

Silver is in constant demand because it’s a versatile metal. Many industries rely on silver for its electrical conductivity, thermal conductivity, and reflectivity.

Many investors consider silver as a hedge against inflation and currency fluctuations. They own it to protect their wealth and diversify their investment portfolio.

How to store silver bullion

You need to consider protection from damage or theft when choosing how you store silver bullion. You can keep small amounts in a safe or other secure location.

For much larger investments, consider a third-party vaulting service instead. You could also ask your bank about their safety deposit box service. You should also ensure your silver bullion for greater protection.

How can allocated bullion be cheaper than unallocated bullion?

Minting” is how we can set our prices for allocated physical gold and silver bullion so low. Minting allows Kinesis users to create their own Kinesis gold (KAU) and silver (KAG) bullion-based digital currencies.

Minting drives down the price of gold and silver bullion on the Kinesis Exchange. It also reduces the cost of liquidity and tightens spreads.

Why buy bullion through Kinesis?

We recently passed our fifth audit. Audits reassure our clients that we store every last gram of physical gold and ounce of physical silver safely. This gold and silver back the Kinesis native digital currencies and are stored in our global vaulting system.

In the past, investors accepted the risk of unallocated gold and silver investment because of the cheaper price and the absence of storage fees. Now, they don’t have to.

Our allocated physical gold bullion and silver prices are competitive with unallocated gold or silver. Investors pay no storage costs to store their metal in fully insured, audited vaults – all while earning a yield each month.

Kinesis offers a low-cost, allocated physical gold and silver bullion storage solution, giving clients accessibility and value never before seen in the precious metals investment space.

Sign up with Kinesis today.

This publication is for informational purposes only and is not intended to be a solicitation, offering or recommendation of any security, commodity, derivative, investment management service or advisory service and is not commodity trading advice. This publication does not intend to provide investment, tax or legal advice on either a general or specific basis.