22 December 2011

Unsegregated Allocated

Following on from this post from 2009 where I identified five types of storage (Segregated Allocated, Unsegregated Allocated, Unsegregated Physical Backed, Unallocated Fully Hedged, Unallocated Unhedged), we now have confirmation that "Allocated" metal at a bullion bank is unsegregated from this interview with Kyle Bass (42 minute mark) where he talks about bars being all over the place when they did an audit.

The unsegregated nature of bullion bank allocated is why Bob Pisani picked up the wrong bar in his visit to the GLD vault as part of a HSBC promo.

This unsegregated storage is not necessarily a problem and would not make a difference in any bankrupty of a custodian as the key "segregation" is the specific bar numbers and weights in the client name. Whether bars belonging to two different clients sit together on the same pallet or are on separate pallets separated by air, I cannot see making a difference.

2 comments:

Troy Ounce said...

Of course this applies only if the rule of law applies and there are no TBTF's between you and your gold.

As stress in financial markets increases one will see that "private ownership" is only a concept, subject to interpretation and confiscation.

John (Ad Orientem) said...

Kyle Bass is a very smart man. In general I don't look at any money manager as infallible in their judgments. But this guy knows what he is talking about. We (by which I mean the US and most of the developed world) are in deep $%^&.