Vault Receipt

What it is

A vault receipt is a legal document that proves ownership of a physical commodity stored in an exchange‑approved vault or warehouse. It is most commonly used for precious metals (gold, silver, etc.) that serve as the underlying asset for futures contracts. Instead of physically moving metal bars, traders and holders can transfer ownership by transferring the vault receipt.

Key takeaways

• Vault receipts represent entitlement to withdraw or relocate the stored asset.
• They enable transfers of ownership without costly physical delivery.
• Metals removed from an approved vault may become ineligible for exchange trading until re‑refined and re‑warehoused.
• Brokers often hold vault receipts on behalf of clients (similar to holding securities in street name).

How it works

1. A commodity (typically precious metal) is stored in an exchange‑approved facility.
2. The warehouse issues a vault receipt listing the asset and its location.
3. Ownership of the asset can be transferred by transferring the vault receipt rather than moving the physical metal.
4. If an owner chooses physical delivery, the receipt authorizes withdrawal or relocation, but doing so often incurs transport, insurance, and handling costs.

Typical contents of a vault receipt

• Location of the vault or warehouse
• Reference or serial numbers identifying specific bars or lots
• Name of the owner or holder of the receipt
• Any outstanding storage fees or charges
• Date of issuance

Ownership, brokers, and trading implications

• Brokers who buy futures on behalf of clients commonly hold the vault receipt unless a client requests the physical document.
• Keeping metals in the approved facility preserves eligibility to sell the metals on the exchange.
• Removing metals can disqualify them from exchange trading; to reintroduce them, bars often must be sent to a refiner and re‑certified to meet exchange quality standards, after which a new vault receipt is issued.

Practical considerations

• Storage fees and ongoing custody costs are typically cheaper than repeated transport and insurance.
• Relocating metal is expensive and can interrupt liquidity because the metal may not be tradeable on the exchange while outside the approved system.
• For most investors in precious metals via futures, retaining the metals in the exchange‑approved vault is the most cost‑effective and liquid option.

Summary

Vault receipts are the practical bridge between physical commodities and financial markets: they enable ownership transfers, simplify settlement of futures positions, and reduce the logistical burden of physical delivery. Understanding the costs and tradeability implications of holding or withdrawing the underlying asset is essential for anyone dealing with metal‑backed futures or warehouse‑stored commodities.