Fully Allocated Gold and Silver Bullion Bars
An AFE Allocated Custody account, as opposed to an un-allocated account, is a situation where there is a distinct physical bar (or bars) which can be individually identified by unique serial number(s) backing up every ounce on account. An Allocated Account holder may take delivery of all, or some of his or her bullion at any time, so long as the amount is equal to one or more “Good Delivery” gold or silver bars. AFE bullion account holders are automatically assigned specific bar serial numbers as the ounces owned exceeds the amount necessary to own a full good delivery gold or silver bar.
Allocated Bullion Account Definition according to the LBMA:
“These accounts are opened when a customer requires metal to be physically segregated and needs a detailed list of weights and assays. The client has full title to the metal in the account, with the dealer holding it on the client’s behalf as a custodian. Clients’ holdings are identified in a weight list of bars showing the unique bar number, gross weight, the assay or fineness of each bar and its fine weight. Credits or debits to the holding will be effected by physical movements of bars to or from the client’s physical holding.”
An un-allocated account on the other hand, typically offered by bullion banks, is an account where there are no distinct bars which can be identified backing the account, and the account holder is effectively an un-secured creditor. By LBMA definition, un-allocated accounts are:
“…an account where specific bars are not set aside and the customer has a general entitlement to the metal… Transactions may be settled by credits or debits to the account while the balance represents the indebtedness between the two parties…Credit balances on the account do not entitle the creditor to specific bars of gold or silver, but are backed by the general stock of the bullion dealer with whom the account is held. The client is an unsecured creditor.”
Many investors today prefer Allocated Bullion Accounts over Un-Allocated Bullion Accounts with bullion banks, because in the event of a financial crisis which creates systemic risk and potential failure of the bullion bank, if the customer is only a secured creditor, the customer may or may not be able to recover the gold or silver, or the equivalent value.
In addition, a key difference between using AFE as a custodian versus a bullion bank is the fact that AFE only stores gold and silver in the unencumbered physical form of allocated gold and silver bullion bars meeting the standards of the good delivery form factor as set forth by the LBMA and vaulted in secure LBMA-approved third party vaults. The LBMA-approved vaulting company is the customers counter-party; there is no financial institution standing between the client and the gold or silver.
The reason this is important is that in the event of a systemic failure in the financial system, client gold and silver assets are not subject to the failure of a financial institution such as those who choose to vault their gold and silver with bullion banks.
The gold and silver are not held on the balance sheet of AFE, they are the property of the client only, while AFE is only acting as a temporary custodian. This type of custody is also known as “bailment“.