On New York's COMEX exchange, gold changes hands every day through thousands of contracts. Less than one percent of them ever reaches a vault.
By Dan Vastrik, 17.06.2026
On New York's COMEX exchange, gold changes hands every day through thousands of contracts. Less than one percent of them ever reaches a vault.
There is no contradiction or scandal in those two sentences. There is simply a market where the word “gold” means at least four different things—and the difference between them determines not a trading style, but the answer to a basic question: what exactly do you own? The subject has accumulated plenty of conspiracy theories, talk of “casinos” and “gold created from thin air.” That is a pity: the real mechanics are more interesting than the labels and need none of them.
Four Forms of “Gold”
- Futures contract — an exchange-traded agreement, such as one on COMEX, to deliver gold at a future date. In practice, the overwhelming majority of contracts are settled in cash or rolled over; fewer than 1% reach physical delivery. It is a tool for hedging and trading the price, not for storing metal.
- ETF — an exchange-traded fund whose shares track the gold price. It is convenient for trading, but a share is an interest in the fund's structure, not a particular bar owned by you.
- Unallocated account — a bank record stating that a certain quantity of gold is owed to you. Legally, it is a claim against the bank: no specific bars are assigned to you.
- Allocated gold / coin / bar — the metal itself, assigned to you or held in your possession. It is not a promise to deliver; it has already been delivered.
The first three forms share one word: obligation. Someone owes you gold. In the fourth, there is no debtor left.
Allocated vs Unallocated: The Dullest Distinction—and the Most Important
Within banking gold there is a distinction that is rarely discussed outside the industry, although it deserves much more attention.
Allocated account: specific, identifiable bars are assigned to you. The bank is only the custodian. This gold does not even appear on its balance sheet—it is yours, not the bank's.
Unallocated account: there are no designated bars, only the bank's obligation to provide “a certain amount of gold.” This is a credit relationship. If the bank runs into trouble, you stand in line with its other creditors.
From the outside, both are called “gold in an account.” Inside, they are two different worlds: metal in custody and a bank's promise.
What Basel III Changed
Now to the regulatory shift that has generated the most noise—and the most confusion—online.
The Basel III international banking rules introduced the Net Stable Funding Ratio (NSFR). Unallocated gold held on a bank's balance sheet was assigned an 85% required stable funding (RSF) factor: the bank must fund 85% of that position with long-term stable funding. For comparison, government bonds carry a factor of 0–5%.
In practice, this means three things. Holding “paper” gold on a balance sheet became expensive for banks. Allocated gold—off balance sheet, with the bank acting only as custodian—is not subject to that burden, just as it was not before. The result is a structural incentive for banks to shift from unallocated gold toward physical metal. The rule has applied in the EU since 28 June 2021 and in the UK since 1 January 2022.
Two myths should also be put to rest. First, Basel III supposedly declared paper gold “toxic” and prohibited banks from holding it. It did not: it merely made it more expensive. Second, gold was supposedly reclassified as a High Quality Liquid Asset (HQLA). It was not—gold did not qualify as HQLA before and still does not. Following representations by the World Gold Council and the LBMA, the UK's Prudential Regulation Authority granted an exemption to banks that clear gold in London so the settlement system would not be disrupted. Dull facts, perhaps. But verifiable ones.
Shanghai and Premiums: Why “2,305 vs 388” Is a False Comparison
Viral posts like a head-to-head comparison: the Shanghai Gold Exchange (SGE) delivers thousands of tonnes of physical gold each year, while COMEX manages only a few hundred. The first half is fair: the SGE really is built as a physical market. Its Au9999 contract requires delivery of 99.99% pure metal into certified vaults, settlement takes one or two days, and roughly 1,500–2,000+ tonnes of physical gold pass through the exchange annually.
But comparing those tonnes directly with COMEX “deliveries” is misleading. Here is why:
- Different accounting. SGE volume is counted on both sides—the same trade appears once for the seller and once for the buyer, effectively doubling it. COMEX counts one side. The figures therefore belong to different systems of measurement from the start.
- A COMEX “delivery” is not a truck carrying gold. It is usually a change in warrant ownership; the metal itself can remain in the same vault for years. Delivery statistics do not show how much gold physically left the building.
- Different purposes. SGE is the physical hub of China's domestic market. COMEX is primarily a derivatives market for hedging. Analysts, including Koos Jansen of BullionStar, explicitly warn against comparing their volumes directly.
What is genuinely worth watching is the premium. When physical demand in a region is strong, the local SGE price rises above the London spot price. A sustained premium is a clear signal of physical tightness. The famous claim of “100 paper ounces for every physical ounce,” meanwhile, is repeated everywhere but cannot be verified: no official statistic of that kind exists. The verifiable fact is less dramatic and more persuasive—fewer than 1% of futures contracts reach delivery.
Forms of Gold: What You Actually Hold
| Form | What it really is | Counterparty risk | Physical delivery |
|---|---|---|---|
| Futures contract (COMEX) | A contract on price | High | <1% of contracts |
| ETF | An interest in a fund structure | Present (fund structure) | Usually unavailable to retail investors |
| Unallocated account | A claim against a bank | Present (you are a creditor) | On request, subject to the bank's terms |
| Allocated / coin, bar | The metal itself | None | The metal is already with you or your custodian |
Key Factors
Four questions separate metal from an obligation:
- Is specific metal assigned to you, or do you merely hold a claim?
- Whose balance sheet records the gold—is it off the bank's balance sheet or on an issuer's?
- Is physical delivery available, and on what terms?
- Does your asset depend on another party's solvency?
Conclusion
“Paper” gold is neither a fraud nor a fake. Futures, ETFs and unallocated accounts each serve a purpose: price trading, hedging and liquidity. They have one thing in common—each rests on a counterparty's obligation. A physical coin or an allocated bar belongs to another category: the asset itself, without anyone else's promise. Basel III did not abolish the first world or crown the second; it simply made the distinction visible in bank reporting. Understanding whether you hold a claim or metal is the entire practical point. It is not a small one. A claim can be disputed, frozen or left unfulfilled. Metal cannot: it simply sits there and has weight.
This material is for educational purposes only and is not investment advice. It explains how the market works; it does not recommend a particular form of ownership. Gold prices can move in either direction, and past performance does not guarantee future results.
In Brief: Frequently Asked Questions
What is paper gold? It refers to forms of gold exposure based on an obligation rather than the metal itself: futures, exchange-traded funds (ETFs) and unallocated accounts. They are easy to trade, but no specific bar is assigned to you.
How does allocated gold differ from unallocated gold? An allocated account assigns specific bars to you, with the bank acting only as custodian; the gold stays off the bank's balance sheet. An unallocated account is a claim against the bank for a quantity of gold without designated bars—a credit relationship involving counterparty risk.
What did Basel III change for gold? The NSFR rules assigned an 85% RSF factor to unallocated gold on a bank's balance sheet, making it more expensive to hold. Allocated, off-balance-sheet gold is not subject to that burden. This created an incentive to move toward physical metal. Gold still does not qualify as HQLA; there was no “reclassification.”
Is it true that there are 100 paper ounces for every physical ounce of gold? The “100 to 1” figure is widely repeated but is not a verifiable official statistic and should be treated cautiously. The verifiable fact is different: fewer than 1% of COMEX futures contracts proceed to physical delivery. The derivatives market is indeed many times larger than the physical market, but no exact multiplier can be stated.
Sources
- World Gold Council. Basel III and the Gold Market — the 85% RSF factor, allocated vs unallocated gold, HQLA status and implementation dates.
- Incrementum AG. Gold's Treatment Under Basel III — regulatory details and common misconceptions.
- BullionStar / Koos Jansen. COMEX Deliveries vs. SGE Withdrawals — why SGE and COMEX volumes cannot be compared directly (two-sided vs one-sided accounting, warrants).
- LBMA / World Gold Council — submissions to the UK's Prudential Regulation Authority and the exemption for London clearing.