Research & Blogs
Bailment and your gold.
When you purchase gold through Gilded, you alone are the direct owner of that gold. The governing legal principle that assures your ownership is called bailment. Bailment has a long history, dating back centuries under English property, contract and trade law – in turn, English law governs the ownership of gold you purchase through Gilded. In its most basic form, a bailment occurs when one person, the bailor, delivers physical property into the possession of another person, the bailee, on the condition that the property will either be returned to the bailor upon request or otherwise disposed of based on the bailor’s instructions. A simple example of a bailment is leaving your car with a valet service, another is checking your coat at a restaurant. Ownership of the physical property does not change under a bailment: only possession has changed, subject to the bailor’s instruction. Fundamentally, the bailee has a duty to comply with the bailor’s instructions, to uphold the bailor’s ownership and to take reasonable care of and assume responsibility for any damage to the property.
Gilded has selected bailment as the governing legal principle because of bailment’s well-established history and its clear requirements that enable our customers to be the direct owners of the gold they purchase. To ensure that our customers’ gold is afforded the full benefit of their bailments, Gilded has selected Brinks – global leader in the safeguarding of valuables – to act as the bailee (or sub-bailee) of our customers’ gold through the global system of vaults it offers in such diverse locations as Switzerland, Dubai, Singapore and the United States. In the storage agreement entered into between Gilded and this vault operator, the operator accepts instructions concerning the gold from the customer, as relayed through Gilded. Under that same agreement, Gilded and the vault operator both acknowledge that the customers have legal title to their gold, as held in sub-accounts maintained by the vault operator, and that neither has any rights to the customer gold. And finally, under that same agreement, the vault operator has obtained insurance thru Lloyd’s for the full value of the customer gold it holds in order to back its obligation to assume responsibility for any damage. In sum, the storage agreement, as governed by English law, memorializes the principles of bailment as they apply to Gilded customers’ gold – those customers, like the car or coat owner, hold the legal rights of ownership of their property.
One other aspect of bailment warrants some focus. When businesses fail, liquidators are typically appointed to take control of and sell the failed business’ assets and then arrange for a fair distribution to creditors. Customer bailments are not an asset of a failed business, but rather remain the customer’s property. A liquidator cannot lawfully treat customer bailments as property available for distribution to creditors. The same applies to gold purchased through Gilded, as stored under the principles of bailment.
Gilded recognizes that there are other, valid methods for investing in gold. One popular method is purchasing shares in a gold ETF and another is purchasing shares in a company involved in a gold-related business such as gold extraction or refining. A fuller description of these types of gold-related investing will be detailed in a forthcoming blog discussing the differences between forms of paper gold like ETFs and the physical gold offered by Gilded. But it is worth noting that by utilizing these other methods of investing, the customer does not own gold directly – there is a company, or a balance sheet, or some other form of intermediation that isn’t direct ownership. In the scenario of a failed business or bankruptcy, the gold investor is lumped together with other creditors, without any personal claim to their investment. By contrast, and as noted, Gilded customers own their gold directly, through principles of bailment that are entered into to protect them in the case of a Gilded business failure.