The End of Unallocated Gold And Silver?
The comments below are an edited and abridged synopsis of an article by Andrew Lane
On April 21, 2021, a huge amount was removed from the iShares Silver Trust (SLV). It might have been a move away from unallocated silver, particularly as SLV is not audited and questions have been raised, particularly on February 2, 2021, when an inversely proportional sell off occurred against a backdrop of record longs.
Unallocated gold/silver is a hot topic. The Reddit crowd and the huge internet wave identifying the likes of SLV dealing in unallocated silver and smashing the price down has become common knowledge, when a few months ago no one would have understood the difference between the two.
Bullion banks have been leasing gold from central banks in order to short it for years. It’s a manipulated fractional reserve market. Hypothecation has been the norm for so long it seems acceptable to plough on as normal.
But investors should know whether their investment in gold or silver is unallocated or allocated. If they are invested in ETFs, they should know what their money is invested against.
Around 95% of gold owned (not traded) across the globe is unallocated gold. That is a staggering statistic.
When Basel III comes into play on June 28, unallocated gold will be expensive to trade and not worthwhile for the manipulated shorts to continue. The LBMA cannot comply with the upcoming rules, despite having had years to prepare. It is no secret that it deals in mass unallocated gold and silver, and has done so for years.
There are many confusing definitions for unallocated and allocated, so here is the simple difference: When you buy gold or silver via an unallocated account, you don’t own it. It can be leased out, and it can have several people’s names on it.
When you buy allocated, however, the gold or silver has your name on it. If you buy physical and take delivery, it sits with you in your possession. This is why there has been a drive to own and hold physical, because there is waning trust in the holdings across the globe of unallocated gold and silver.
The LBMA and the Comex are shedding physical gold and silver at the fastest rate in many years. With mass deliveries standing at month end and record outflows, and unallocated ETFs dropping fast, metals price manipulation could be ending, particularly with Basel III looming.
The question, however, is whether the derivatives of gold and silver are over. With more and more people rushing out of ETFs, and with Basel III around the corner, who wants to pump money into these derivatives?