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Precious Metals Depository Storage: Wrong Choice Can Have Unfortunate Consequences

Isaac Nuriani    |
Apr 2, 2021

Many people buy gold and silver for the potential advantage they offer as long-term savings assets—the way they often diversify savings as a hedge against economic and even geopolitical turmoil. Another advantage of owning metals is having a portion of your money stored outside of and away from the banking system.

The matter of precious metals storage isn’t as simple and straightforward as some might think. When you buy gold and silver, whether it’s within or outside of an IRA, you have some choices.

For those who buy precious metals in a cash account (outside of an IRA), I recently discussed some of the possible challenges of home and safe deposit box storage of metals. Home storage can present a personal security challenge, although many gold and silver owners are willing to take on that risk.

Some people choose safe deposit box storage — it is a convenient option to keep metals safe but geographically close. However, storing your coins and bars at a bank, in some ways, can keep you beholden to the same banking system metals ownership is supposedly liberating you from. If freedom from banking connections is important to you, another storage option is needed.

This is where dedicated precious metals depositories can come in real handy. Depository storage can be an ideal solution for many gold and silver owners. If you own precious metals within an IRA, this is the only choice we recommend. But all depository storage is not the same. There can be significant differences in storage options at a precious metals depository.

The main difference is that some depository storage choices don’t guarantee you’ll retain title to the exact same metals you purchased. And there’s one common storage choice that not only prevents you from having direct ownership of specific metals but exposes your purchase to the facility’s financial risk. Making the wrong storage choice could prove very costly.

Depository Storage 101: Allocated vs. Unallocated Storage

Among the most important terms for metals buyers to know as they learn more about depository storage are “allocated” and “unallocated.” These two methods of storage are as different from one another as night and day. Understanding what distinguishes one from the other is key to avoiding a potentially regrettable storage experience.

Unallocated Storage

Let’s start with unallocated storage. If you choose to buy metals for unallocated storage, you’re opting for what is typically the lowest-cost storage option – in fact, there may be no actual storage cost to you at all. But there’s a reason why it’s the low-cost option.

Generally, unallocated storage means you buy precious metals through a precious metals dealer’s “pool” account and you don’t have direct title to any specific coins or bars. What you are buying is a portion of the dealer’s pool account metals that are already on deposit at the storage facility. Typically, instead of buying specific bars or coins in this arrangement, you are buying a quantity of metals in general.

So, rather than purchasing, say, 500 one-ounce American Silver Eagle coins, you buy and actually own 500 ounces of the dealer’s pool account silver that’s stored on an unallocated basis at the depository. But you don’t have title to any bars or coins. When you want to withdraw “your” metals from an unallocated account, you receive 500 ounces of silver that could be in the form of bars, coins, or even bags of “junk” silver. It is all worth the same amount of money, but the physical silver you receive from the depository will be in a variety of conditions.

This is the most important thing to know: Unallocated metals typically reside on the depository’s balance sheet. As a legal technicality, this means that unallocated metals actually are the property of the depository, and you’re a creditor of the depository. You’re owed the metals you’ve purchased, but you don’t have direct title to any specific pieces of gold and silver. If the depository were to run into financial trouble and ultimately become insolvent (which is unlikely to happen), the metals on the facility’s balance sheet could be liquidated to satisfy creditor claims. In such a circumstance you might have very little to show for your metals purchase. Or nothing at all.

Allocated Storage

Allocated storage is a different matter. For allocated storage of your metals, you will select – through the dealer – the specific gold and silver you want to buy. Using our previous example, let’s say you want to buy 500 ounces of silver. In this case, you might decide to purchase 500 one-ounce American Silver Eagle coins minted in 2021. The dealer will send your 500 coins to the depository, where they will be carefully unwrapped, inspected and inventoried. Most importantly, your direct ownership of 500 one-ounce 2021 American Silver Eagle coins will be documented at the depository, which means they’re not part of the facility’s balance sheet. In this capacity, you’re not merely a creditor of the depository – you’re a direct owner of metals stored there.

But there’s a slight wrinkle to allocated storage. Once the administrative intake of the metals is complete, they’re placed on a shelf inside a vault amid and among boxes of other customer gold and silver. When you withdraw some or all of your allocated metals, the depository will send you precious metals of the same year (if they are coins) and in the same condition as those you purchased – but they may not be the exact same metals you purchased.

Let’s stay with our American Silver Eagle coins example. If you want to withdraw 100 of your coins, you’ll receive 100 2021 Silver Eagles in the same condition as those you purchased. However, they may not be 100 of the actual Silver Eagles that were originally delivered to the depository in your name.

Allocated storage is a common storage option for precious metals, because customers can prove ownership and feel confident they’re receiving back metals of the same quality and year (if coins) that they purchased. For some precious metals owners, however, it is important to receive back the exact same metals they purchased, so there’s another storage option available.

Precious Metals Depository Storage: Segregated Storage is the “Gold Standard”

For gold and silver owners who insist, for their own reasons, on an unbroken chain of custody until they decide to liquidate or take possession of their metals, there’s the segregated storage option. With segregated storage, the metals you originally buy are security-sealed and stored apart from the metals of other precious metals depository customers.

Segregated storage is, if you’ll pardon the awful pun, the “gold standard” in depository storage. You retain title to the exact same metals you purchased, which are held off the depository’s balance sheet and securely stored in a way that ensures the chain of custody remains unbroken.

This form of depository storage is a little more expensive. However, it’s well worth the cost for gold and silver owners who want a guarantee that there will never be a substitution of the metals they purchased for as long as they own them.

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