Gold pool accounts are very similar to gold certificates, but unlike the latter, they are not securities. The value of money in these accounts does depend on the price of gold, but it may differ depending on the type of the account and the strategy adopted by the managing firm.
There are two types of gold pool accounts. Allocated accounts are fully backed by gold. Unallocated (pooled) accounts are only partially backed by gold (or not backed at all, as some sources report).
Allocated accounts are very similar to allocated certificates. They are fully backed by specific gold bars or coins. When investing in this type of account, we can be sure that our bars or coins will not be used by the firm managing our account. As the owner we can sell at any time or move them.
Unallocated gold accounts are very similar to unallocated certificates. In this case, just like with allocated accounts, we are the owners of gold. However we cannot technically section it off in the pool of gold covered by the issuer. Quite often unallocated certificates are only partially backed by gold, which means that if all the investors wanted to exchange their certificates for bars or coins at the same time (a so-called run on the issuer), it might not be possible to exchange all of the money invested.
The advantages and disadvantages of pooled accounts are similar to those of gold certificates.
Their main advantage is that they allow buyers to avoid the risks and costs associated with transporting and storing physical gold. Investors are not exposed to the risk of theft and do not have to incur the costs of the bid and offer spreads as with gold bars or coins. The value of the money in a gold account very closely follows the price of gold on world markets. They are also very liquid and we can always withdraw money.
On the other hand, investing in gold accounts involves other costs and risks, like commissions and fees. Banks and other firms managing them often charge a fee for storing gold in their safes. Also, investing in gold accounts involves credit risk – the risk of issuer default and loss of invested money. There is also the risk that the bars or coins the account is based on do not actually exist. Buying gold in a physical form does not involve these kinds of risks.
Investing in gold certificates means that there is also a risk that the manager of our account may invest money entrusted to them in financial instruments other than gold and pay its clients only the return they would earn on gold. This isn’t a big problem if the investments are successful. However, if these investments make the issuer lose money, they may ultimately lead to its bankruptcy. If it did not have gold bars or coins, it may mean the loss of investors’ money.
The main difference between gold accounts and certificates is the fact that certificates are securities and gold accounts are just accounts. Since certificates are unregistered securities they can be sold at any time for a price determined by their supply and demand. Gold accounts, on the other hand, are registered; they are opened in the name of a specific client. Exchanging money accumulated in these accounts for cash means having to either withdraw it from the account or even to close the entire account. In the latter case, the firm managing the account is the other party of the transaction, not another investor.
The most popular gold accounts are offered by:
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