Gold deposit scheme for loans from Emirates NBD
Posted on 25 November 2010 with no comments from readers
Emirates NBD, the largest bank in the UAE has launched a gold deposit scheme that enables customers to borrow up to 80 per cent of the value of gold they deposit with the bank while availing themselves of a free secure custodian for their precious metal.
The Emirates Money subsidiary of the bank is promising that interest rates will be among the lowest in the market for retail loans. Clearly depositors will be hoping that the rising value of gold will more than offset the cost of their loan.
Gold deposits
Customers have to deposit gold worth at least AED30,000 to benefit from this scheme, with a minimum length of deposit of six months and a maximum of three years. The gold can be in the form of bullion or jewellery and will be stored in the Dubai Multi Commodities Centre’s new vault.
This new scheme allows customers access to liquidity from their gold without actually having to sell it, and providing the value of gold continues to rise more than the cost of the interest payments then they are actually going to make money on this loan. The money obtained can be used for any purpose as it is secured against the gold on deposit.
Bullion prices have been advancing by more than 20 per cent for the past seven years so this seems a win-win proposition, though of course nothing is guaranteed.
The emergence of gold backed loans is surely an indication that the gold bull market is entering another phase. It is indicative of strong retail investor support for gold, so strong that they would rather borrow than part with their gold.
Tread carefully
That is most likely logical as much higher gold prices probably lay ahead next year. However, those taking out such loans should be aware that if the price of gold falls significantly then the gold may not be sufficient to repay the loan, for which they will remain fully liable.
So if you do leverage gold you need to be extremely vigilant and watch the gold price. If it starts to turn against you then sell out and settle the loan early, and for that there would undoubtedly be a penalty. Otherwise if you might end up with a large cash call from the bank.
