Clearing the Air on Your (Swiss) Precious Metals Storage Options
Unallocated, pooled, allocated, collective, segregated. All terms are related to owning and storing precious metals. Some media reports this spring had a few of our clients contacting us to confirm if they actually had physical metals in storage with us at Global Gold. Let’s try to help “clear the air” on what these different storage options mean, and what you actually have at Global Gold.
The questions all came up similarly: “I have been very concerned since we heard the news about Perth Mint (and others) refusing owners of unallocated metal access to their silver. I have been purchasing silver (and gold) as a safeguard against potential currency disruptions due to the untenable global financial situation. For us to have faith in our precious metals, we need assurance that the physical metal will be there for us should we require it. Towards that end, is the 'collective storage' similar to pool allocated?”
The short answer is “no” but based on the number of similar emails we received on the topic, I felt compelled to write this post in hopes of explaining some main points about different precious metals storage options, and then define the storage options we offer at Global Gold specifically.
First, what is unallocated and pooled storage?
In April, a number of news stories popped up regarding the unallocated and pooled storage offered by the Perth Mint, in Perth, Australia, as well as the production problems related to supplies at a few of the world’s other mints. Let me explain what the issue was.
Sticking with the example set forth by the Perth Mint’s Certificate Program, rather than selling the actual, physical precious metals to a client, the Perth Mint gives a certificate to a client with the number of ounces purchased. The Perth basically owes the investor the metals; the certificates offered are backed by the working inventory of the Mint. The Certificate also details their precious metals stored in either unallocated, pool allocated, or allocated accounts.
Unallocated storage, in the case of the Perth Mint, means that “clients own, as an owner in common with other Unallocated clients, an undivided interest in the pool of precious metal maintained in unsegregated storage”. They go on to say that they could indeed use the metal in their operations, but that metal is immediately replaced by the same amount that is used. Thus, every unallocated ounce is backed 100% by metal.
Admittedly, it’s a nice way to own precious metals, as you don’t pay any fabrication or storage fees. However, it’s important to know that you don’t actually own the physical metal. In this case, the investor is a creditor, and the Perth Mint (bank, or other) remains the owner of the metals. They can still use these metals as part of their own liquid reserve, useful in a liquidity crisis, or to hedge, pledge, loan or otherwise use on their own accord.
Pooled storage (or “pooled allocated” as it is sometimes called) is where the investment is simply backed by a pool of specific bars, which are normally all the exact same size (for silver, perhaps 1000oz silver bars, or 1kg bars for gold). Owning pooled metals is analogous to holding a metals ETF; you aren’t buying a bar directly, but rather a share in a pool of bars. Since the metals are actually there, you are now paying some fabrication and storage fees, just not as high as you would if you owned the physical metal outright.
I basically equate pooled storage to fractional ownership. If you own 150oz of silver, and the pool of bars contains only 1000oz bars, what do you think will happen when you want your silver in physical, allocated format? You’ll have to have it fabricated, because you won’t own enough to access the 1000oz bars. So, you own a “fraction” of the metal there.
It is important to note that this type of storage is used more often than you might think, and not only by the Perth Mint, but also by many banks, ETFs, and precious metals dealers or brokers, even when claiming to offer physically allocated precious metals storage. I’ve seen more than one bank statement from a client trying to move their metal to Global Gold that ended up showing they only had a “claim” to metal vs. the actual metal itself.
What brought on the focus to unallocated or pooled silver?
The “story” actually started back in February when the “Redditers” targeted silver (see our Alert blog post from that time). Thanks to the sudden and unusual push of Reddit investors (depending on what you believe), prices jumped and demand for silver, which was already increasing, got a significant boost. Come to think about it, you can even go back to the beginning of the year, when there were already mumblings that silver was in high demand, and the US Mint, for example, was already unable to meet production targets.
In reference to the email I shared earlier, stories surfaced that the Perth didn’t have the silver supply to potentially fill the orders of unallocated or pooled silver being converted to physically allocated, and deliverable, metal. It’s been a bit of an age-old question regarding unallocated and pooled metal: if all unallocated and pooled metal holders suddenly made a run to fabricate their holdings into physical metal, would the bank, the Mint, etc. have the actual metal in their inventory to fill those orders?
I want to make it very clear that I am not here to badmouth the Perth Mint’s offering in any way. In fact, I at one time worked as part of a team that was an approved dealer for the Perth Mint’s Certificate Program, and never had any bad experiences with them. I do know this is a story that does seem to come up once every 6-12 months, and frankly, you can probably always expect these questions on unallocated and pooled metals storage thanks to the nature of the storage.
This is why the question each metals’ investor needs to be clear on is if they are holding their metals the right way for them?
Allocated storage, and how Global Gold compares
When we are talking about allocated gold and metals, the investor is the outright, direct owner of an exact amount and certain format of metal. When we say that you own “physically allocated precious metals”, that means if we purchase 30, 1oz gold Maple Leaf’s for you, then you own those 30, 1oz gold Maple Leaf’s…no more, and no less.
Also, when we talk about allocated storage of your gold, that means that your gold is removed from any working inventory. No one else has a claim on your metal other than you, and that metal should not be usable in any way without the client’s consent to sell, or perhaps pick up or take delivery of said metal.
When it comes to Global Gold, first, and most importantly, we only buy specific, physically allocated metals for our clients. When you wire funds to us for a purchase, we are buying a set number of bars or coins of gold, silver, platinum or palladium for you. This is why we always have a residual to wire back to you after purchase (it’s impossible to buy 20.4321 ounces of Canadian Maple Leaf’s, right?).
Then, our definition of "Collective" storage means that metals of the same format are simply stored together, or collectively; “allocated” storage is the term used quite widely to describe the same. In any case, you always own that specific amount of that particular format, but they are simply stored together with others of the same.
As an example, if I buy 100 x 1ozt gold Maples, and you buy 100 x 1oz gold Maples, with Collective storage, the 200 Maples are simply stored together, with other gold Maples. If I want to sell 50 of mine, or take delivery of 70 of my coins, any of the Maples are used. Thus, the 100 Maples you sell or take delivery of some day may not be the exact ones you purchased, but you are always guaranteed to have 100 there until you decide to do anything with them. Since Global Gold only buys what our clients order, and we cannot loan, pledge, hedge, or otherwise use the metals in storage with us, your 100 coins will always be there.
Collective storage is actually our most popular and most-used option because it keeps costs lower for the client. And thanks to monthly reconciliations of our clients’ stock of metals, as well as one annual audit by a big-4 auditing firm – where each metal is physically counted – we take the needed steps to ensure the metals you purchased are always there.
We also offer what we call “Segregated” storage, which simply means that your metals are physically kept separate from all other metals in storage. This obviously takes up more space, which is why our Segregated storage is slightly more expensive – let’s call it the “big brother” to Collective Storage.
And finally, Key Box Storage has our clients purchasing their own secure box, lock, and two keys for that lock. The box holds up to 30kg, or roughly 60lbs, of metal, and then only the client has access to the contents of the box with their key. This is why for Key Box storage Global Gold cannot arrange the sale or delivery of your metals without your being present with the key.
Perhaps it’s interesting to note that no matter what type of storage you have with Global Gold, the same high security vaults are used for all three options. Therefore, there’s no difference in how secure your metals will be, no matter which storage option you use. Most importantly, no matter which storage is used, your metals are yours, and will not show up on the books of Global Gold, nor our storage provider.
“Towards that end, is the 'collective storage' similar to pool allocated?”
So, to answer the original question, no, Global Gold’s Collective Storage is not similar to Pool Allocated. It always brings me back to the same point: there are many ways to “hold” precious metals out there, and none of them are “wrong”. But you should be sure to own metals in a way you understand…and the way you want to own them.
I believe this particular client’s response summed it up best: “Thank you so much for your explanation and clarifications. I have shown your reply to my wife, and we are quite reassured. We will continue with the collective storage. All the best”.
And all the best to you…that’s what we are here to do!