The Gold Metal Loan, Explained

Gold is a central working capital requirement for jewellery manufacturers. A Gold Metal Loan (GML) provides gold for production, with settlement linked to the quantity borrowed and the terms of the facility.

Why Borrow Gold?

With a cash loan, a manufacturer borrows money to purchase gold. With a GML, the bank provides the metal itself. The distinction matters when planning purchases, production, sales and repayment. Gold price movements and any unhedged exposure still need attention.

How the Facility Works

The bank sources gold through its bullion supply and refinery relationships, then releases it against a sanctioned limit. The quantity is weighed and documented. The manufacturer uses the gold to make jewellery and settles each drawdown under the agreed terms.

• Sanction: a limit assessed against the manufacturer’s turnover, track record and relevant export orders.
• Drawdown: gold released in tranches to meet production needs.
• Tenor: the repayment period agreed for each drawdown, taking account of the manufacturing and sales cycle.
• Repayment: settlement of each drawdown under the facility terms.

Pricing

The cost of a GML reflects the interest or charges agreed with the bank, its gold sourcing costs, gold lease rates and market conditions. Sourcing and refinery relationships therefore matter to the bank’s ability to price the facility.

Repayment and Settlement

Managing settlement requires a clear view of outstanding gold exposure, any unhedged positions and the borrower’s sales cycle. A sanctioned limit alone does not show how the facility is being used or when repayment will fall due.

A GML credit assessment needs to consider both the manufacturer’s ability to sell the jewellery and the management of metal exposure until settlement.

What a Bank Monitors

• Time between drawdown and sale, by borrower and product line.
• Concentration risk: exposure to a small number of large borrowers.
• Confirmed export orders, where they support the borrowing.
• Gold price volatility and unhedged exposure.
• Sourcing and refinery relationships that affect the bank’s cost of gold.

Managing a GML facility brings together sourcing, pricing, credit assessment and settlement. Each needs to be understood alongside the physical movement of gold through the business.