What is a Vault Receipt

A vault receipt is a document frequently used as a delivery instrument or to show ownership of precious metals stored in a bank, warehouse, or depository. Also known as warrant or warehouse receipt for metals.

Breaking Down the Vault Receipt

Vault receipts indicate ownership of precious metal commodities. They are also used as a way of transferring precious metal ownership, without physically moving the metal.

Vault Receipts and Futures Markets

Vault receipts simplify the process of taking delivery on a futures contract. The buyer of a precious metal futures contract is agreeing to buy a set number of ounces at the agreed price. If the buyer chooses to take delivery of the metal when the contract expires, they will pay the seller and the seller will transfer the precious metal to the buyer.

This isn't done physically, which could be very costly with shipping charges and other fees. Instead, a vault receipt is provided to the buyer. The receipt shows the location of the metals and reference numbers, the date of the receipt, the name of the owners of the metal, and any storage fees or other costs that may apply to the precious metals being left in the warehouse.

With the vault receipt, the buyer of the precious metals can then opt to keep the metals stored and pay fees associated with that, or have the metals relocated. They can also transfer ownership of the precious metals to another party via a vault receipt. The name on the vault receipt changes to the new owner.

Exchange Warehouses

Futures exchanges store precious metals in secure warehouses. All precious metals that come into the warehouse must meet specific quality standards and specifications. Precious metal refiners produce these quality bars for the exchange. Vault receipts are then issued to owners of the precious metals being brought in. The owners may be mining operations, the refiner, or other parties using the refiner to create exchange-quality precious metal bars. The vault receipt changes hands/name when there is delivery on a futures contract.

In the real world, vault receipts are typically held with the broker and the owner of the vault receipt doesn't receive a physical copy unless they specifically request one. 

For most traders, the physical metal also stays in the warehouse and is not physically removed. Removing the precious metal from the exchange warehouse means that metal can no longer be traded via futures contract because the circle of integrity for those bars has been broken. It is then up to the owner of the physical metal to store it or sell it on their own. If they wish to sell it via futures contract, after removing it from the exchange warehouse, it needs to go back through the refining process. Once the metal is back in the warehouse a vault receipt is issued once again.