Cyprus: Physical Gold Storage – But How?

Last Updated: 9 May 2018
Article by Shanda Consult Ltd

Unallocated gold storage, allocated gold storage, segregated gold storage or allocated and segregated gold storage – these terms describe the form of storage and the legal relation of a gold owner with his or her physical gold purchased and stored.

The same terms are of course also used for the storage of physical silver, platinum or palladium, or other items. To make the text easy to read, we will focus on the term gold storage, representing the storage of other precious metals or items as well.

Buyers of physical gold or silver or other precious metals are often not aware of the terms "unallocated", "allocated", "segregated" and "allocated and segregated" storage. Or, they do not really know what those terms describe. And in many cases, they do not know the legal and virtual consequences of those different forms of gold storage.

The differences between "unallocated", "allocated", "segregated" and "allocated and segregated" gold storage are important though, and thus are their consequences.

If you are storing your physical gold under your bed or in your chimney hood, you might opt out now and read other pages of our website. However, if the physical gold that you own or intend to buy is a bit too much to be stored in your house, then you should read this article carefully.

Following, we will shed light on possible forms of physical old storage.

Unallocated gold storage

"Unallocated" means not booked, unchartered, vacant, unoccupied, unreserved, available or free.

Let's say a bank or a security storage company has 30 tons physical gold stored in its vaults. You decided to diversify your investments to hedge your investment risks. Therefore, you decided to buy 25 kg physical gold. You visit your bank and buy 25 kg gold in form of bars.

After you have successfully concluded your deal, your banker presents you your certificate or confirmation that you purchased and own 25 kg gold and that the bank stores this for you. Or, your bank opens a gold account for you and 25 kg gold are credited to your gold account, without a value, because the value changes.

Neither the certificate nor the gold account mentions any bar numbers. That means that from the gold stocks of the bank no specific gold bars have been allocated to you as their owner.

The scenario is that the bank did not sell you, and thus you do not own, any specific gold bars, with the number XXX to YYY. In other words, you do not "own" physical gold, but you own the right on any 25 kg of the bank's gold stocks.

There are several very important consequences of unallocated gold storage. One important consequence is that you will not be able to take your gold with you one day to store it somewhere else. That is because you do not own any particular gold bars.

Another important fact is that the gold on which you bought "rights" remains in the assets of the bank. Your assets are solely your "rights".

Gold is equally liquid to cash money. Banks include the gold in their assets when calculating various capital adequacies that they must meet as per the relevant fiscal regulations. This is another reason why banks will not hand out the physical gold to their customers. Customers that bought unallocated gold actually do not own any specific gold bars.

In case of the bank's insolvency or claims from third parties against the bank, your gold is under risk as well, because it belongs to the bank's assets and will be included in the liquidation trust, for example.

Allocated gold storage

Based on the above example, the difference of allocated gold storage is that specific gold bars from the bank's stocks will be allocated to you when you buy gold. You will then see the serial numbers of gold bars on your certificate or confirmation of ownership or on your gold account confirmation.

That means that you do own specific gold bars, identified by their serial numbers, stored together with the bank's general physical gold stock. Somewhere down there in the bank's vaults, among many other gold bars, you would (theoretically because they will not allow you to enter their vaults) find your own gold bars with your serial numbers.

You might want to rent your own safety deposit box at the bank and store your 25 gold bars of one kilogramme each in your own box. Most likely the bank will not have any empty safety deposit boxes available.

The bank might also try to convince you that their own vaults are much safer and that you would benefit from their insurance coverage if you do not put your physical gold bars into your own safety deposit box but leave it in their own vaults. If this should be the case, the reason is most probably that the bank intends to keep your allocated 25 gold bars within their own assets. There are ways in accountancy to both allocate specific gold bars to customers and to keep them in the bank's own assets.

Segregated gold storage

"Segregated" means separated, isolated, divided, detached or cloistered. In terms of physical gold storage, it means that the bank or the security storage company stores the gold bars that you purchased in a clearly separated form, away and clearly distinguishable from other gold bars belonging to other customers or to the bank or the security storage company.

This is generally done buy relocating your gold bars from the bank's or security storage company's own stocks into a separate box that is marked in a way that you can be identified as the owner of that box. Those boxes are often sealed (they should be sealed), and your certificate or confirmation of ownership or your gold account will show the seal number(s) of those boxes.

Depending on the amount of gold bars that you own, your gold will be stored in one or more boxes. A box like on the photo above, showing the boxes that Shanda Precious Metals is using, for example, can hold 20 gold bars of one kilogramme each, worth today (04 May 2018) approx. USD 851.350 or EUR 713.150.

Segregated storage separates a customer's gold bars from all other gold bars and makes them distinguishable. Segregated gold storage makes the separation from the assets of a bank or a security storage company easy because the separated location can easily be described and distinguished. This is a safe way for the owner of the gold to have it in their own assets solely, being protected against third party claims or insolvency of the bank or the security storage company.

However, there are important reasons to prefer "segregated and allocated" storage, as explained below.

Segregated and allocated gold storage

Segregated and allocated storage, as the term explains, both separates your gold bars from any other gold bars and allocates your particular gold bars to you. This is the most sophisticated and most secure form of gold bar storages.

In case of segregated and allocated storage, your inventory confirmation or inventory list will name both the box seals and the serial numbers of your gold bars. Both your storage container and your gold bars are unmistakably defined and distinguishable.

This is important, for example, for the insurance of your gold bars in your own name, or it may be required by tax authorities for asset declarations.

Segregated and allocated gold storage makes it easy to unmistakably distinguish gold stored in that way from the bank's or the security storage company's own assets. Your gold bars are clearly your gold bars.

Banks, financial institutions and funds etc. only accept segregated and allocated gold storage, as this is the safest way, allowing them to have their gold stored for example with us but in their own assets and provides them with the possibility of insurance coverage in their own names.

Shanda Precious Metals

We provide safekeeping storage in our facilities in Liechtenstein solely in the form of segregated and allocated storage, unless you opt to rent from us your own strong room or safe (small vault) and store your gold bars there.

Our segregated and allocated safekeeping storage services include insurance coverage in the name of our customers as a standard, with no extra costs for our customers.

Precious metals stored with us in the name of our customers never forms a part of our own assets but is under full legal ownership of our customers.

You are granted access to your physical gold or silver or other precious metals and items 24/7.

We recommend that you read more about our services here.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

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