What Is a Vault Receipt?

The term vault receipt refers to a document commonly used to show ownership of precious metals in a futures contract. Vault receipts are normally used as delivery instruments and represent metals that are stored in a bank, warehouse, or depository—simplifying the process of taking delivery on a futures contract. That's because they can be used to transfer the ownership of precious metals between buyers and sellers without having to move the physical commodity.

Key Takeaways

  • A vault recipe is a document used to show ownership of precious metals in a futures contract.
  • The precious metals are stored in a bank, warehouse, or depository.
  • Vault receipts allow the transfer of ownership of the commodity rather than the physical metal itself, which can be costly.
  • Details on the vault receipt include the owner's name, the metal and their reference number, the storage location, and the date of the receipt.
  • Vault receipts are kept with the broker—not with the contract owner.

How Vault Receipts Work

As noted above, vault receipts prove ownership of certain commodities—specifically, precious metals such as gold, silver, and platinum. Here's how they work. When someone takes delivery of a precious metals futures contract, they get a vault receipt to represent the order. The physical commodity itself is actually stored in a depository—a bank, warehouse, or another secure location. When someone purchases a precious metal futures contract, they agree to buy a set number of ounces of the metal at the agreed price. If the buyer chooses to take delivery of the metal when the contract expires, they pay the seller who then transfers the precious metal to the buyer.

Vault receipts are also known as warrants or warehouse receipts for metals.

But this isn't done physically. That's because moving the commodity itself is normally very costly—it would add shipping charges and other related fees to the purchase price. Instead, a vault receipt is provided to the buyer. The receipt shows a number of different details including:

  • the location of the metals
  • the reference numbers of the metals
  • the date of the receipt
  • the name of the owners of the metal
  • any storage fees or other costs applied 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 that are 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.

In the real world, vault receipts are typically held with the broker. The owner of the vault receipt, on the other hand, doesn't receive a physical copy. They can only get a copy of the receipt if they actually request one. 

Special Considerations

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.

Remember—for most traders, the physical metal stays in the warehouse and is not physically removed. When and if the precious metal is removed from the exchange warehouse, 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 a 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.