Concept
Physical precious metals—gold and silver—remain a classic way to store capital outside the financial system: they have no issuer that can go bankrupt and no counterparty credit risk. But you can own gold in different ways, and the form of storage determines what exactly you own and what risks you bear.
Allocated and Unallocated
Allocated storage means specific bars assigned to the owner and segregated by serial numbers; the metal legally belongs to you and is not on the custodian's balance sheet, so the custodian's bankruptcy does not affect it. Unallocated (pooled) storage is cheaper and more convenient for trading, but it is merely a claim against the institution: the bank owes you a certain quantity of metal, and you bear its credit risk. For capital preservation, allocated is usually chosen.
Quality Standard
The professional market is oriented toward the LBMA Good Delivery standard: uniform requirements are applied to bars, their purity, and provenance, and pricing is based on LBMA prices. This ensures liquidity—a bar from a recognized refiner will be accepted at any major vault.
Freeports
A freeport is a customs warehouse in a free-trade zone where goods are stored with deferred duties and VAT until they leave the zone. For precious metals, art, and wine, this eliminates import tax during storage. The largest centers are Switzerland (Geneva Freeport), Singapore (Le Freeport), and Luxembourg; Switzerland also remains the global center for gold refining.
Singapore and Switzerland
Singapore strengthened its position by exempting investment precious metals from GST tax starting in 2012; together with the Freeport, this restored the city's role as a hub for physical gold trading. Switzerland traditionally does not levy VAT on investment gold.
⚙️ Freeports provide tax deferral and high-level storage, but attract regulatory attention: under pressure from the EU and FATF, free ports have tightened record-keeping on owners and asset provenance. The anonymity for which they were famous is largely a thing of the past.
Costs
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Physical metal has its own price: storage and insurance fees, bid-ask spread, premium over spot for small bars and coins. Therefore, precious metals are held as insurance and a means of capital preservation, not as a source of current income.
🍓 Physical gold in allocated storage and to LBMA standard means ownership without counterparty credit risk. Freeports add tax deferral and protection, but require accounting for storage costs and increased transparency.
This material is for informational purposes only and does not constitute individual advice.
Key factual claims
- Singapore strengthened its position by exempting investment precious metals from GST tax starting in 2012; together with the Freeport, this restored the city's role as a hub for physical gold trading.