Allocated gold: An ‘allocated’ account is an account with a bullion dealer to which individually identified gold bars or coins owned by the account holders are credited. The gold bars or coins in an allocated account are specific to that account and can be uniquely identified.
Basis price: The basis price for gold is equal to the local trading price.
Blockchain: A blockchain is a type of decentralised digital ledger, used as an alternative to centralised record-keeping. The ledger may be distributed publicly to anyone, or limited to authorised, ‘permissioned’ participants. Blockchains are cryptographically secured, ideally resulting in immutable transaction records whose authenticity can be verified by different participants. In the case of tokenised gold, an individual investor’s allocated gold holdings are recorded on a blockchain to prove ownership and facilitate transfer of ownership.
Gold hallmark: Gold hallmarks originated to show the purity of gold in a piece of gold jewellery and included the mark of the assaying office that certified the purity of the gold. Later, trademarks that showed which goldsmith had manufactured the product were added.
High-risk investor: High-risk investors are defined as investors where the product provider has reason to assume an increased probability of money laundering or terrorist financing activities.
Melt value: The melt value refers to the value of the gold or other metals of an object such as a bullion bar, a coin or a piece of jewellery.
Pool allocated gold or fractional allocation: Pool allocated gold accounts provide investors with co-ownership in one allocated gold bar or a pool of allocated gold bars. Pool allocated gold is fully backed by physical gold. Investors own a fraction of the overall pool of allocated gold but are not allocated individual bars.
Professional custodians: Trusted custodians could be vault operators, which are members of reputable trade bodies, such as the LBMA in London or the SBMA in Singapore. They could also be a type of custodian that serves in such capacity for exchanges and other regulated infrastructure providers.
Prohibited investors: An individual or entity on any relevant list of prohibited persons and entities, such as the List of Specially Designated Nationals and Blocked Persons administered by OFAC (Office of Foreign Assets Control of the US Treasury) in the US.
Purity or fineness of gold: The content of pure gold – or fine gold – of a gold bar, coin or other object is called fineness. Gold objects often contain some alloys or impurities. One measure for the fineness of gold is carat. Carats indicate the gold parts per 24. 24 carat gold is almost pure gold (99.5-99.9%).
Settlement: The settlement date is the date when the ownership of gold changes from seller to buyer. On this date, the buyer has to pay for their purchase and the seller has to deliver the gold to the buyer. The settlement period is generally one or two days. The term ‘settlement risk’ refers to the risk that the counterparty fails to deliver gold when the investor has already paid for it (or that the investor fails to pay for their gold once it has been delivered).
‘Spot price’ and ‘premiums’: The ‘spot price’ of gold typically refers to the price of one troy ounce of gold on global gold markets. Depending on the form or type of gold bullion that investors purchase, there will be additional ‘premiums’ or ‘mark-ups’ to be paid. In general, the premium paid on a small bar or coin will be relatively higher than on a large bar.
Unallocated gold: In an unallocated account, a customer does not own specific bars or coins but has a general entitlement to a set amount of gold. The investor is not the legal owner of any physical gold; instead they are a creditor of the provider.
AML – Anti-Money Laundering
ATF – Anti-Terroism Financing
CDD – Customer Due Diligence
KYC – Know Your Customer
LBMA – London Bullion Market Association
OECD – The Organisation for Economic Co-operation and Development
SBMA – Singapore Bullion Market Association