The international organization that sets Sharia law’s financial
standards recently opened up gold-investing opportunities within the
system of rules honored by many millions of Muslims around the world,
potentially allowing for a huge number of new gold investors.
The Accounting and Auditing Organization for Islamic Financial
Institutions approved new rules on Nov. 19 that allow gold to be used
in Islamic finance. The new Sharia rules were established in
conjunction with the World Gold Council, which released a statement on the new rules’
approval Dec. 5.
“The Standard will, for the first time, set specific rules for the
use of gold as an investment in the Islamic finance industry. Until
now, there have been no such rules,” the WGC statement reads. “The new
Standard shows that investment in gold is permissible provided that
all the relevant Shari’ah rulings are satisfied, including those
relating to taking possession of gold and the proper calculation of Zakah.
“The Standard will help open up a new investment asset class,
enabling Islamic banks and other financial institutions to grow their
customer bases and facilitate the creation of a broader range of
saving, hedging and diversification products.”
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Read the WGC's full statement here.
AAOIFI Secretary General Hamed Hasan Merah said in the WGC statement
that the “all-important” new standard modernizes Sharia law’s approach
to gold dealing and investing.
“Hopefully, this would represent a progressive stride for the
Islamic finance industry,” Merah is quoted as saying in the WGC statement.
WGC CEO Aram Shishmanian, who had been quoted in an AAOIFI statement at the outset of the new rules’
development that there had previously been limited guidance in
Sharia law in terms of buying gold coins and bars and “virtually no
guidance on gold elsewhere in the financial sector,” called the
approval of the new rules “ground-breaking” for Islamic investors and
the entire gold industry.
“We are delighted that there is now definitive Shari’ah guidance on
the permissibility of investing in gold,” Shishmanian said. “Gold is a
proven wealth preservation asset that Islamic investors can now deploy
to protect their wealth and diversify market risks.”
Before the rules were approved, in a June 28 post, TheStreet.com published an
article explaining what the changes could mean for the gold investing market:
proposal on which the AAOIFI and WGC have been working says that
gold investments must be backed by physical gold.
So, gold futures contracts wouldn't be acceptable investments. But
the gold standard draft does approve holding gold in derivative
contracts, ETFs, investment accounts and Islamic bonds. ...
A definitive decision on investing in gold would mean that Muslim
investors could choose from more Sharia-compliant gold investment
vehicles. With a market of 1.6 billion people, this could have a big
impact on demand for gold.
The WGC estimates that the Sharia gold standard could equal
"hundreds of tonnes" of new demand from the Muslim world.
To put that in context, the global demand for gold was 1,290 tonnes
in the first quarter, which was 180 tonnes more demand compared with
the fourth quarter, a 16% increase. ...
If the new Sharia gold standard is implemented this year, which
looks like a good possibility, 20% of the world's population will
have new access to gold as an investment. If the expected increase
in demand lives up to expectations, we might only be in the opening
stages of this gold rally.