Gold refiners are warning that regulators’ plans to force banks to set aside more capital against their holdings of the precious metal will ultimately make it more costly for consumers buying jewellery.

Banks lend gold to refiners, which typically use it to pay suppliers and customers, but under new rules proposed by the Basel Committee on Banking Supervision, the costs to banks could triple, according to the London Bullion Market Association.

“It will mean the banks will pass this cost on,” said Grant Angwin, president of Asahi Refining, a Salt Lake City-based refiner with operations in five countries.

“Banks are not making enough money now in the commodities space to absorb these costs. They will pass that on to the refiners, who will pass it on to jewellery manufacturers or collectors, who will pass it on to Joe Public. So Joe Public will pay.”

Under the rules, banks will need more capital against gold on their balance sheets since regulators do not consider the metal a high-quality liquid asset.

The LBMA, however, argued that gold is as liquid an asset as sovereign bonds and should be exempt from the rules.

“There will be less players and less options,” said Ruth Crowell, head of the LBMA, at the body’s annual conference in Singapore this week. “[But] the refiners can’t afford to say ‘we’re out of precious metals’ — they still need financing.”

To make on-time cash payments, refiners typically borrow gold to pay. They can then pay back the loan to the bank in a gold bar they produce. They also borrow gold from banks if their plants break down, or they need to stop them for regular maintenance.

Gold loans in turn reduce the price risk for the borrower as the metal is returned to pay back the loan rather than cash. Banks then depend on lending of gold from central banks to fund these loans.

The LBMA and World Gold Council have both lobbied the European Commission, which is in charge of implementing the Basel III rules, to ease the amount of capital that banks will have to set aside.

The gold loan is an “integral part of the supply chain in the bullion industry”, the bodies said in a letter to the commission in June. “It was the most efficient way of funding the industry since gold is the refiners’ ‘currency’.”

Officials at the LBMA said it was unlikely that the rules — due to come into effect in 2018 — would be repealed.

The best that could be hoped for, they said, was a reduction in the percentage proportion of capital required to be held against physical commodities such as gold, which is planned to be set at 85 per cent.

“Everyone is concerned,” said Jason Rubin, president and chief executive of Florida-based Republic Metals Corporation, a precious metals refiner. “The banks are the banks — there’s nowhere else to go.”

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