When a customer trades for allocated gold bars, they receive ownership rights to specific gold bars that are held in a precious metal dealer’s vault on the customer’s behalf. Allocated gold is identifiable with a unique serial number, purity, and weighting for each bar.
When a customer trades for unallocated gold, they do not have actual ownership over specific gold bars; instead, they have a general entitlement to a certain quantity of gold that an institution promises to deliver. This is hypothetical gold and is a liability of the institution that one has a claim against. This is similar to the way a traditional bank operates – customers don’t own specific notes, but rather they have a credit that can be paid out upon request.