Allocated storage

An arrangement in which specific, identified bars are recorded as belonging to you, as opposed to an unallocated claim on a shared pool of metal.

Example

A product holding allocated metal recorded against it is a different instrument from one holding an unallocated claim, even where both are named after the same metal.

Important

Unallocated metal makes you a creditor of whoever holds the pool. If the reason for owning the good was that it is nobody's promise, only an allocated arrangement delivers that reason.

Related terms

• Commodity — A physical good that is substitutable unit for unit, so it trades at a single global price rather than on the merits of any particular producer.
• Exchange-traded commodity — A listed product giving exposure to a commodity and traded like a share. It may hold the physical good, an unallocated claim on it, or futures contracts.
• Counterparty risk — The risk that the party on the other side of an arrangement fails to pay what it owes you.
• Cost of carry — What it costs to hold a physical good until a future date: financing on the capital tied up, plus storage and insurance.

Lessons that explain it

• A physical good, and three very different ways to own it — Metal in a vault, a listed product that holds metal, and a dated contract on metal are not three versions of one investment. They differ in minimum size, cost, storage and who owes you what. (9 min)
• The only class here that charges you for holding it — There is no income at all - no coupon, no dividend, no rent. The return is the price change minus the cost of carry, which means a flat price is a loss, and the loss compounds. (10 min)
• Appraising one exposure: the drivers, the carry and what the product holds — Six checks. Two of them - the curve and what the product actually holds - decide more of a five-year outcome than any view about supply and demand, and both have exact published answers. (13 min)
• Nothing arrives while you wait, and the wrapper sets the tax — Large declines with no income to cushion them, a running charge on an asset that pays nothing, a roll cost that hides inside a price - and in the United States, three wrappers around the same metal taxed three different ways. (12 min)

All 578 terms in the Investing glossary