Gold Investment Account – Definition, Types, Advantages, and Disadvantages

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Gold has been used throughout history as “real money”. It has maintained its reputation of being an attractive commodity against inflation, deflation, and currency devaluation. A lot of investors started losing their faith in stocks, currencies, real estate, mutual funds, and other investments after the major economic stress in 2008. Many preferred to pay for gold and considered getting a gold investment account.

While the most popular way of investing in gold is buying bullion gold bars, buying gold using a gold account is another vehicle to invest in this precious metal. A gold investment account is an account that allows investors to buy the purest available gold commodity in the market. In contrast to physical gold (bars, coins, jewelries, etc.), gold accounts allow investors to build up a cheaper gold portfolio. Below are some of the other benefits of gold accounts.

  • Gold accounts, similar to other forms of gold investments, act as a hedge against inflation.
  • Gold trading becomes more convenient when gold accounts are used during transactions.
  • It is an affordable initial investment.
  • Gold in an investment account can be easily disposed on demand unlike jewelries.
  • The risk of loss and theft is reduced since the asset is held in an account.

As with all other kinds of investment, gold accounts also have weaknesses. Here are some of them.

  • Because gold accounts are not tangible, one cannot pawn it for quick cash.
  • Transactions must be made over the counter during banking hours only.
  • If your bank goes out of business, you can lose all your gold.

There are plenty of banks that offer gold accounts. Different gold accounts impose varying types of intermediation between the investor and their gold. In general, gold bullion banks offer two kinds of gold investment accounts – allocated and unallocated.

What is an allocated gold investment account?

Just like keeping gold bars inside a highly secure deposit box, this gold account is one of the safest forms of gold investment. When gold is placed in an allocated account, the gold is kept in a vault managed by a recognized bullion dealer or depository. Bars and coins are distinguished, numbered, and identified through hallmarks, weight, fineness, etc. These precious metals are then allocated to different investors who pay for the price of gold, storage, and insurance. The bullion dealer or depository who is responsible for managing the vault may not sell, lend, or lease the metal – except when there are specific instructions on the account.

What is an unallocated gold investment account?

Unallocated gold account investors generally do not have specific bars assigned to them. Traditionally, one major advantage of unallocated gold accounts has been the absence of storage and insurance fees, because the bank reserves the right to lease the gold out.

But, now that the gold lease rate is negative in real terms, a good number of banks have started to introduce charges even on unallocated gold accounts. As a rule of thumb, bullion gold banks do not transact in quantities below 1000 ounces. Their clients are institutional investors, private banks acting on behalf of their clients, central banks, and gold market players who are interested to buy or borrow large quantities of gold.

An investment in gold accounts is a great way to diversify your financial strategy and portfolio. While some investors prefer to actually hold their gold, others desire to put theirs in a gold account which allows them to earn potentially higher return from appreciation in gold price. If you think that investing in gold accounts better suits your investment needs, just see to it that before you decide on one, you have a good background of the market and how this can affect your portfolio.