Unallocated Storage
custodial risk
Unallocated Storage refers to a custody arrangement in which a client holds a general claim to a quantity of precious metal, such as gold or silver, but does not own specific, identifiable bars. The metal is pooled and may be used by the custodian for other purposes, including lending, trading, or collateralization.
Use Case: “Gold ETFs like GLD and SLV operate on unallocated storage ÔÇö offering price exposure without giving investors legal claim to any specific bullion.”
Key Concepts:
- General Claim ÔÇö Client does not own specific bars; only a share of pooled metal.
- Counterparty Risk ÔÇö Custodian can lend or repurpose assets, affecting redemption.
- No Redemption Rights ÔÇö Users cannot request delivery of actual bullion.
- Exposure vs. Ownership ÔÇö Allows price tracking without asset control or sovereignty.
Summary: Unallocated Storage offers ease of access and price exposure, but comes with significant custodial risk. It lacks transparency, legal title, and redemption options ÔÇö making it unsuitable for investors seeking true ownership, security, or sovereign wealth preservation.
| Feature | Allocated Storage | Unallocated Storage |
|---|---|---|
| Legal Ownership | Direct ÔÇö Specific bars held in your name | Indirect ÔÇö Claim on pooled reserves |
| Redeemability | Yes ÔÇö Physical delivery guaranteed | No ÔÇö Redemption not available |
| Usage by Custodian | Not permitted | May be lent, pledged, or traded |
| Counterparty Risk | Low ÔÇö Asset remains segregated | High ÔÇö Based on custodian solvency |
| Examples | KAU, KAG, private vault storage | GLD, SLV, pooled ETF reserves |