Allocated gold is considered to be quite different because you tend to become the outright owner of gold and hence, you are no longer a creditor. The allocated gold is your sole property and the bank reserve has no right to use it. Thus, allocated gold provides you with proper protection from systematic failure.
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.
To make things complicated and worse, should the bank collapse and become insolvent, any gold bullions that physically exist instantly become the property of the creditors, and the investors who traded in the unallocated bullions are left with nothing.
These are the reasons; many gold traders hesitate to trade in unallocated bullion. When you purchase allocated bullion, the gold actually exists, you know where it is, and it belongs completely to you. It is not some phantasmagorical tool in the conspiracies of the sorts of fairy tale banking tactics, which are now intimidating to bring down the world markets.
If the financial situations are going smooth then you will have no loss from investing in unallocated gold. However, if there is any financial problem then you can suffer great losses. This is one pint that most of the investors are not aware of. They feel safe that they have invested in gold but it is very important that you look into the details of everything that you are investing in.
You will understand unallocated gold better if you compare it to the allocated gold. In allocated gold, there is physical existence of gold that you invest in. The bank provides safe keeping for it and it becomes their liability. On the other hand, an unallocated gold is like a current account. Once you put your money in current account, the bank can use it for different purposes and it is not their liability. Similarly, if you invest in unallocated gold, the bank uses it for its own purpose and it does not become their liability. Just as there is no cash in physical state in the cash account, there is no gold in unallocated gold account.
In the history, unallocated bullion has been a fairly safe deal. However, in the periods of economic crises, as markets begin to re-establish themselves, it is the flimsy futures which evaporate first, and unallocated gold is theoretically a very flimsy future indeed.
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