Precious metals in custody

Beneath the City of London, the Bank of England and the vaults of LBMA members hold a large share of the physical gold traded worldwide, in Good Delivery bars of about 400 ounces each. A fund, a central bank or a wealthy individual who has metal held there first picks a legal form. On an allocated basis, bars identified by number, refiner and fineness belong to him; the custodian holds them and has to hand them back. On an unallocated basis, the client holds a claim in ounces on the custodian, which remains owner of the metal: if it fails, he is one creditor among others. Insurance follows this split. The custodian's policy covers its liability as keeper, or the property entrusted to it, against theft, disappearance and destruction, with a per-vault limit often negotiated in the London specie market. It protects the custodian first, and the client only through it. An owner who wants cover in his own name buys his own policy, which responds to a loss even when the custodian's liability is disputed or capped, and whose insurer then seeks recovery. Unallocated metal gives little hold for that kind of policy, since the client owns no bar. For the underwriter, the vault is accumulation in its purest form: billions in value, dozens of owners, often insured with the same syndicates under different policies. Not to be confused with cash in transit insurance, which covers metal on the move, nor with title risk, which concerns ownership itself.