May 14th, 2010 by Jack Wagon

Gold is one of the most precious metals that are found in the earth. It has many qualities and is used for various purposes. Gold has always been a symbol of high status and quality. It is the most widely used metal and the only one that is found in the earth in the actual form. Therefore, it is very much appreciated.

The last few years have seen a great surge in the prices of gold, which has only strengthened the belief of people in gold as the safest investment. People have been investing in gold for centuries. It has been considered as the safest investment since the time immemorial.

However, it is not only banks that provide us with allocated gold. Fabrication businesses and pool account providers also do so. Anyone who has the idea to employ gold in a distinct way can trade gold on an unallocated basis. The financers of gold mines always have a similar motivation since they can always lend gold to miners to be repaid out of the later production; however, this is a high risk of financing mines, because they assume that the mine has been successful.

Apart from this, gold has been used in trading. The most famous form of trading in gold is the unallocated gold. It is a form of book keeping by the banks and the most commonly traded form of gold in the world. Almost 95 percent of the gold is traded in unallocated form.

This unallocated gold works in a way that the banks allow you to invest in gold without getting its physical possession. It is just like trading in stocks. It is similar to a gold account. Gold does not exist in the physical form, as it is often thought so. Therefore, there are many strings attached to investing in the unallocated gold.

Moreover, a bank is required by its regulator to hold a percentage of its liabilities, as particular assets can easily be converted into cash at the time of crisis. It is a liquid reserve and can easily shield the bank from falling into liquidity crisis. Thus, physical gold bars are accepted as a tangible and beneficial form of liquidity reserve since they can be easily converted into cash.

You have noticed that when banks trade in unallocated gold bullion, they are actually trading on the promise of giving you gold bullion. If you purchase unallocated gold bullion and then ask them for the physical product, you will get it but after paying some additional fee; however, most traders will never ask to see their gold bullion, so it stays a promise, theoretical gold. You pay money to the bank for gold they do not have, and they take your money and invest it to make profit on it. So, when you eventually trade your gold to anyone else, you just sell the promise of gold on to another party.

Well, it is not important to be impressed by unallocated gold since it has been other aspects that need to be thoroughly checked by you.

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