Selling physical metal is one way to obtain cash from a bullion holding, but it is not the only possible structure. Under a metal-backed liquidity arrangement, eligible physical precious metal can be used as collateral for borrowing.
Rather than selling the asset, the owner pledges the metal to support a loan or credit facility. This creates liquidity while allowing the bullion to remain within the custody structure, subject to the financing terms.
What does collateral mean?
Collateral is an asset pledged to secure an obligation. If physical gold is used as collateral, the lender relies partly on the value of that gold when extending credit. The borrower still has an economic interest in the metal, but the asset becomes subject to restrictions because it is securing the outstanding obligation. The lender therefore gains enforceable rights under the applicable agreement.
The metal does not need to be sold
This is the central distinction from an ordinary bullion sale. In a sale:
metal is exchanged for cash.
In secured borrowing:
metal supports access to cash while remaining pledged.
The borrower receives financing rather than sale proceeds.
The metal can remain in professional custody instead of being transferred into the dealer's ordinary sale inventory.
Understanding loan-to-value
One of the key concepts in secured lending is loan-to-value, usually shortened to LTV.
LTV compares the amount borrowed with the value assigned to the collateral.
For example, if eligible metal were valued at $100,000 and a facility allowed $55,000 of borrowing against it, the LTV would be 55 percent.
This does not mean the borrower has sold 55 percent of the metal.
It means the loan principal represents 55 percent of the collateral value used for that calculation.
Alloy Capital Commodities describes a metal-backed liquidity service based on 55% of spot value. Actual eligibility, valuation and financing terms belong to the specific commercial arrangement and must be confirmed with the desk.
Why lenders do not normally advance 100 percent
Precious-metal values can change.
If a lender advanced the full current value of the collateral, even a relatively small price decline could leave the loan insufficiently covered.
An LTV below the full collateral value creates a buffer.
The required margin depends on the financing terms and risk controls established by the lender.
Price changes still matter
Pledged metal remains exposed to market-price movement.
If the value of the bullion falls significantly, the relationship between the outstanding loan and collateral value changes. Depending on the agreement, this can create additional requirements or consequences.
These are contractual financing risks and should be understood before using metal as collateral.
Custody becomes especially important
A lender needs confidence that the collateral exists and remains under controlled custody.
Allocated metal, product identification, valuation records and restrictions on withdrawal can therefore become important parts of the facility.
The borrower cannot generally treat pledged metal as freely withdrawable while it secures an outstanding obligation.
Liquidity without immediate liquidation
The fundamental purpose of the structure is straightforward.
A holder who needs liquidity may be able to access cash without first selling the physical metal.
But this introduces a new legal and financial relationship. The bullion is no longer merely stored property. It is now collateral supporting a debt, which leads directly to the next important concept: the lien.
