Swiss banks UBS and Credit Suisse, have moved to offer ‘allocated’ gold and silver accounts to their clients, including high net worth individuals, hedge funds, other banks and institutions. The move allows these entities to take direct ownership of their bullion in ‘allocated’ accounts. In addition, their storage fees have been raised by 20%.
The reason being is that the banks say that they are making the move to reduce exposure and risks on balance sheets and in an effort to be more transparent. Is there more to this than meets the eye? We believe there is, much more and it is a warning for us!
First let’s look at what the actions mean.
The London Bullion Market Association defines an “Unallocated account as an account where specific bars are not set aside and the customer has a general entitlement to the metal. It is the most convenient, cheapest and most commonly used method of holding gold.”
The story of Germany’s gold being repatriated to Germany highlighted that Germany’s gold is ‘unallocated’ in foreign central banks. Most gold owners hold their gold in storage systems where it is ‘unallocated’. The downside is that the owner of ‘unallocated’ gold is an unsecured creditor of the storage company. So if you hold your gold at a bank in this way and it goes bust, you will have to wait and hope you get at least some of your money back.
An ‘allocated’ gold account is where a customer has his gold physically segregated and is given a detailed list of the weights and assays of his gold. The gold is held in the customer’s name and owned by him still. In this case his gold cannot be taken by the Custodian or bank’s creditors should the bank go bust. The gold would, in that case be moved on the instructions of the beneficial owner.
Please note, though, that the clients of UBS and Credit Suisse have been ‘offered’ allocated accounts, they had not requested them. ‘Allocated’ accounts are more costly so it is no surprise that the costs of storing customer’s gold has risen 20%.
As we said, there is far more behind this story than is apparent at first.