Shariah rules for using gold as an investment unveiled

Dubai - The new standard shows that investment in gold is permissible provided that all the relevant Shariah rulings are satisfied

In a ground-breaking initiative for Islamic investors and for the gold industry at large, a new gold standard that sets specific rules for the use of gold as an investment in the Islamic finance industry has been launched.
The Accounting and Auditing Organisation for Islamic Financial Institutions and the World Gold Council announced the launch of 'Shariah Standard No. 57 on Gold and its Trading Controls on Monday.
The new gold standard deals with the Shariah rulings for gold in its various forms and categories, Shariah parameters for gold transactions and the rulings for gold-based financial products in institutions.
For the first time, the standard will 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 new standard shows that investment in gold is permissible provided that all the relevant Shariah rulings are satisfied, including those relating to taking possession of gold and the proper calculation of Zakah.
Precious metals analysts said the new Shariah-compliant gold could lead to a very significant source of new demand for physical gold coins and bars in the Islamic world. They believe that this will lead to much higher gold prices as some of the $2 trillion of assets held in Islamic financial institutions are allocated to the very small physical global gold market.
Dr Hamed Hasan Merah, Secretary General of AAOIFI, said the all-important Shari'ah Standard culminates substantial efforts exerted by AAOIFI Shariah Board, the leading and most influential Shari'ah authority across the Islamic finance industry worldwide.
The new standard constitutes a new addition to the existing set of AAOIFI's standards as it covers Shariah-compliant mechanisms for dealing and investing in gold in a present-day setting, potentially setting ground for constructing and structuring of new investing products in conformity with Shariah rules and precepts, in addition to those relating to liquidity management for Islamic financial institutions. "Hopefully, this would represent a progressive stride for the Islamic finance industry."
AAOIFI said the standard would 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.
Aram Shishmanian, CEO of the World Gold Council, said the move is a ground breaking initiative for Islamic investors and for the gold industry at large. "We are delighted that there is now definitive Shariah guidance on the permissibility of investing in gold. Gold is a proven wealth preservation asset that Islamic investors can now deploy to protect their wealth and diversify market risks."
Discussions on the Standard (no. 57) were finalised at the AAOIFI Shariah Board meeting on November 17-19, where the final wording of the standard was approved.
- issacjohn@khaleejtimes.com