Allocated v segregated

[JB3]

Can anyone explained to me, in simple language perhaps, what extra risks I've got with my allocated accounts (Goldmoney, et al.) versus a fully segregated account?

I've heard the latter is better but I confess I can't really see what the fundamental difference is or what risk I have by being allocated, rather than segregated.

Thanks.

JB3

[JB3]

Sorry - this should have been in the 'general precious metals' forum.

Feel free to move it!

[HighlandTiger]

Allocated means you have a percentage of a specific pile of metal held in some vault. Segregated means you have your own pile of metal held in some vault, that you do not share with anyone else.

 

Either way, I personally would prefer to have the PM's in hand, as in times of crises you may not be able to get access to your pm's if they are stuck in some vault on the other side of the world.. 

[JB3]

Thanks. I can see that difference, but can't see what increased risk there is in being allocated vs segregated. If your pile's being looked after by someone else, why is it safer to have your own pile being looked after them rather than part of their big pile?

As for location: having some in hand is good. But geographic diversification has advantages too - your hoard might not be safe from your government if you store in solely in locally held physical. My motto is some in hand, some nearby, some far, far away.

[Danny-boy]

As for location: having some in hand is good. But geographic diversification has advantages too - your hoard might not be safe from your government if you store in solely in locally held physical. My motto is some in hand, some nearby, some far, far away.

That sounds very sensible to me.

And I don't really see how you would ever know if it is "actually" segregated or not. I doubt they let you in the vault on a day trip.

[JB3]

True. I suppose at least you get bar numbers, so you'll know when you call them in (but, by then, it might be too late to find out you're wrong!)

[HighlandTiger]

Thanks. I can see that difference, but can't see what increased risk there is in being allocated vs segregated. If your pile's being looked after by someone else, why is it safer to have your own pile being looked after them rather than part of their big pile?

 

 

I think you should ask the German government that question.   The Americans are "looking after" the gold owned by numerous countries, and "allegedly" the same pile of gold keeps being moved from vault to vault as countries wish to view their gold stack, telling them "this is your gold"

 

Obviously this is on a larger scale, but the principle is the same. It's all down to trust. Do you "trust" these people to actually have the gold in their vaults. And do you trust these people to actually give you a percentage of their holdings?

[JB3]

I understand those risks - but I can't understand why a segregated account with a third party would be safer than an allocated one? After all, if the company goes defunct or is fraudulent or whatever, how is a segregated account any safer?

[JB3]

But some sites talk like it should be.

[garthy]

A segregated account is your own personal vault and your metals can be delivered any time, an allocated account means the metals are stored under your name in a huge vault with everyone else's, a little more risky as it lends itself to fractional reserves, if you're one of the last to ask for your metals to be delivered you may find there's none left.

[DrDime]

I think the answer is that when it comes down to it you're trusting in both cases that they have the metal and in a squeeze will not disappear into the night.

I think technically in a segregated account you Legally own the lump of metal and they're storing it for you - they are not allowed to move or sell it without your permission - as opposed to allocating a lump that they own.

So the increased safety is that you have more of a legal claim to it ...for what that is worth

[JB3]

Ok, thanks.

[HelpingHands]

If it's not segregated your gold will be part of a giant bar.

[JB3]

Sure, I just couldn't see why that's any more risky than it being a small bar on its own.

[HelpingHands]

It could take a while longer if everybody wanted to take delivery since it'd need chopping up.

[Danny-boy]

I think it's all symbolic, and akin to paper silver / gold.

I know these things are audited, but I'm still dubious.

Even if they show you a 1000kg bar that they say you have a small part claim on (let's say you have 1kg claim on it), you could never know for sure that there aren't another 3000 people with a 1kg claim on it, or multiples of.

If you have it in hand, you know it's yours and yours alone.

Maybe I'm being very sceptical and over simplifying it, but I would personally be vary wary of he whole "remote" PM thing.

[silversword]

I have some allocated gold and own part of a bar/bars. The vaults are audited and the bar list published online. The LBMA are part-owners of the company which lends some legitimacy. Compared to a segregated account I dont have to buy physical with high premiums and then put it into vaults. It saves me worrying about storage and helps me to trade quickly online: I did hold allocated silver as well, but was able to trade it almost instantly for a profit and get gold at a cut price. Nice system for easy liquidity and I can withdraw cash or physical bars when I want to. I

[JB3]

Those are all good points. I've taken some action to segregate some of my allocated assets so now at least I have bar names and numbers with my name against them.

Not sure I've made my remotely-held stuff safer than it was before, but at least I've done what I can for that proportion that I don't hold in hand, or nearby.

It might not be 100% safe, but at least it's geographically diversified.

Thanks all.