When physical precious metal is pledged as collateral, it may remain in the same vault and still be associated with the same owner. Yet the owner can no longer treat the asset exactly as though no financing existed.
The reason is the lien.
A lien creates a legal interest or claim over property that secures an obligation. In a metal-backed financing arrangement, it allows the lender to rely on the pledged bullion as collateral for the outstanding debt.
A lien is not the same as an immediate sale
Placing a lien on bullion does not necessarily mean ownership has been transferred through an ordinary sale. Under the Alloy Capital Commodities model, the company describes the client as retaining ownership and market upside while the metal remains in the vault under lien. That distinction is important. The borrower may continue to have an ownership interest in the asset, but those rights are now subject to the lender's secured interest and the financing contract.
Title and control are different concepts
This is similar to the distinction introduced in the custody module.
Title concerns ownership rights.
Control concerns what can actually be done with the asset while the arrangement exists. A client may retain title to pledged bullion while losing the unrestricted ability to withdraw, transfer or sell it independently. That restriction protects the lender. Collateral would provide little security if the borrower could remove it from the vault at any time while the loan remained outstanding.
The metal stays identifiable
Professional collateral arrangements benefit from clear custody records.
The lender needs to know:
- what metal exists;
- its quantity;
- applicable value;
- where it is held;
- how it is identified;
- whether it remains under controlled custody
Serial numbers can help when the collateral consists of individually identified bars.
Allocation and custody documentation can further establish which assets are subject to the lien.
What happens while the metal is pledged?
While a financing facility remains outstanding, the metal continues to serve as security. The borrower normally cannot treat it as unencumbered property. For example, a withdrawal request may be restricted because physical removal would eliminate the controlled collateral supporting the loan. Similarly, transferring the metal to another party could conflict with the lender's rights. The specific restrictions depend on the financing agreement.
What happens when the obligation is satisfied?
Once the secured obligation has been fully satisfied according to the agreement, the lien can be released. At that point, the metal is no longer being used to secure that debt and the associated restrictions can end. The precise release process depends on the applicable documentation.
What happens if the borrower does not perform?
A secured lending agreement also defines what rights the lender may exercise if the borrower fails to satisfy the obligation. Those rights can potentially include enforcement against the pledged collateral. The legal mechanics depend on the financing agreement and applicable law, so they should not be inferred solely from the fact that the asset is described as “metal-backed.”
Why this matters
The phrase “you still own the metal” can be misleading if the lien is ignored. Ownership subject to a secured claim is operationally different from unencumbered ownership. The more complete statement is:
The borrower may retain an ownership interest and exposure to the metal, while the lender holds enforceable rights over the pledged asset until the secured obligation is released.
Understanding that distinction is essential before comparing metal-backed borrowing with simply selling bullion.
