Shariah Gold Standard Approved for $2 Trillion Islamic Finance Market

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Shariah Gold Standard Approved for $2 Trillion Islamic Finance Market

by Jan Skoyles, Editor Mark O'Byrne

The Accounting and Auditing Organisation for Islamic Financial Institutions (AAOIFI) and the World Gold Council have made an important decision which was announced yesterday at the World Islamic Banking Conference in Bahrain.

This decision is about one of the most important markets in the world: the gold market, an invest-able market worth an estimated $2.4 trillion and is also of significance for the world of Islamic finance.

sharia-gold-infographic2-1
The AAOIFI, in collaboration with the World Gold Council (WGC) and Amanie Advisors, has approved what will become known as the Shariah Gold Standard. This is a set of guidelines that will expand the variety and use of gold-based products in Islamic Finance.

As many as 1.6 billion Muslims in the world, 25 per cent of the population, will have far greater access to the gold market than they have since the birth of modern finance, which has been primarily structured towards Western ideals.

More details were announced at the World Islamic Banking Conference including details of the gold products that are likely to be permissible.

The sharia gold standard announced yesterday allows the over 110 million investors in the Islamic world to invest in

a) vaulted gold

b) gold savings plans (such as GoldCore's GoldSaver)

c) gold certificates

d) physical gold ETFs including "probably" the SPDR Gold Trust, the biggest exchange-traded gold (GLD)

e) gold mining shares (within certain Shari’ah parameters)

We know three things that the new Shariah gold-standard will achieve:

a) Increase diversity in the number of available Shariah gold compliant investment products

b) Greater emphasis on the role of physical gold in gold transactions

c) Islamic finance will have greater say in the setting of the gold price

To some, this may appear to be an unnecessary formality taken by the body whose guidelines are followed by Islamic finance institutions across the world. After all, physical gold is Shariah-compliant and holds a unique status for Muslims.

AAIOFI states, "From the perspective of Islamic Fiqh and the Islamic economic system, gold has its specific significance. This significance arises from the specific principles provided for gold and silver as Thaman in Shari'ah."

According to Islamic texts, gold is a ribawi item, which means that it must be sold on weight and measure, and cannot be traded for future value or for speculation. In order for a gold instrument to be Shariah-compliant, the precious metal must be the underlying asset in related transactions.

However there has been a need for clarification for how gold bullion can be used for investment purposes by Muslims, for a long time.

This uncertainty has kept Shariah-compliant offerings at a minimum and many investors restricted by the type of gold bullion transactions they are able to partake in, with most focused on jewellery and coin offerings. Daud Bakar, chairman of Amanie Advisors, agrees, ".the existing Islamic standards for gold are fragmented, hampering product development and market demand."

Currently in the gold market, the majority of activity regarding gold financial instruments is based almost entirely on speculation. This is due to the overwhelming size of both the London and COMEX (Chicago Mercantile Exchange) gold markets, which together have the greatest influence on the spot price of gold.

Whilst Islamic investors have always had access to the gold market through jewellery and coins, this guidance will vastly increase the number and diversity of investment products available. There are very few Shari'ah-compliant gold offerings today. Using its deep sector knowledge, GoldCore, and its Islamic partners, have been working on a comprehensive solution for two years and will provide the solution to qualifying Islamic financial institutions in early 2017.

With gold investment platforms such as GoldCore able to offer segregated, allocated gold bullion accounts with the option of physical delivery, Muslims are now able to invest in gold bars and coins.

The new 'gold standard' will affect the gold market globally as 1.6 billion people will be able for the first time to use gold bullion products and platforms that offer physical delivery, allocated and segregated gold ownership.

"For a number of years we have been working on an institutional gold platform and indeed a Sharia compliant gold bullion solution for the institutional market. As a market leader in precious metal storage, we have been consulting with major institutions and our strong partners to deliver allocated and segregated gold storage services to investors throughout the world", said GoldCore CEO, Stephen Flood.

If Islamic Finance institutions were to allocate just one per cent of assets into new gold products then we would expect to see demand climb by about 500-1000 tonnes, per annum. Given that recent demand and supply figures showed a surplus of just 172 tonnes of gold in the market, we could begin to see some tightening with the increase of Shariah-compliant gold instruments, which will have a positive impact on the price.

It is not unreasonable to expect a minimum one per cent move of Islamic finance assets into gold, especially when you look at how it has performed. WGC data shows that in the last eight years the major Islamic asset classes (including REITs, the Takaful index, the Dow Jones Islamic Equities Index and the Dow Jones Sukuk Index) have all underperformed compared to gold, as have the major currencies used in the Islamic world.

Few appreciate that the launch of a Shari'ah gold or Islamic gold standard signals a changing dynamic in the gold market. Gold bullion  will be additionally appealing to Islamic banks due to Basel III rules that require banks own high liquidity and quality, low counter party risk assets such as physical gold in allocated and segregated storage.

Until now, no group as influential as the AAOIFI has issued guidelines stating that gold must be the underlying asset in all gold transactions as we suspect they will do shortly.

Whilst the likes of the COMEX gold market are able to grow to multiple times the size of the underlying physical market, with little impact on physical demand or price, this will no longer be case.

Jan Skoyles is a research executive at GoldCore, a gold investment platform and this is a version of an article that first appeared in the Khaleej Times, the UAE's best selling English newspaper and highest circulated English language newspaper in the Gulf

Gold and Silver Bullion - News and Commentary

Gold nudges up after falling to 10-month lows (Business-Standard.com)

Gold at 10-month low on higher shares (Reuters.com)

Asian markets pick up speed, put Italy vote in rear-view mirror (MarketWatch.com)

3 more gold coins found in Salvation Army red kettles (ValleyNewsLive.com)

New Islamic finance guidance on gold emphasises "physical gold" (Reuters.com)

Gold Double-Slammed As 'Traders' Puke $3.5 Billion Notional Through Futures Markets (ZeroHedge.com)

FT: Fears Rise over Future Supply of Gold (Gata.org)

A pensions time bomb spells disaster for the US economy (BusinessInsider.com)

Another battle between insiders and outsiders (DavidMCWilliams)

What happens next, now that Italy has voted ‘no’ (MoneyWeek.com)

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Gold Prices (LBMA AM)

06 Dec: USD 1,171.15, GBP 918.18 & EUR 1,086.94 per ounce
05 Dec: USD 1,164.90, GBP 915.84 & EUR 1,095.36 per ounce
02 Dec: USD 1,171.65, GBP 929.00 & EUR 1,100.88 per ounce
01 Dec: USD 1,168.75, GBP 930.09 & EUR 1,099.68 per ounce
30 Nov: USD 1,187.40, GBP 952.06 & EUR 1,115.44 per ounce
29 Nov: USD 1,187.30, GBP 952.45 & EUR 1,119.98 per ounce
28 Nov: USD 1,189.10, GBP 956.51 & EUR 1,117.99 per ounce

Silver Prices (LBMA)

06 Dec: USD 16.79, GBP 13.17 & EUR 15.63 per ounce
05 Dec: USD 16.62, GBP 13.05 & EUR 15.54 per ounce
02 Dec: USD 16.35, GBP 12.95 & EUR 15.36 per ounce
01 Dec: USD 16.30, GBP 12.91 & EUR 15.35 per ounce
30 Nov: USD 16.67, GBP 13.39 & EUR 15.66 per ounce
29 Nov: USD 16.54, GBP 13.26 & EUR 15.61 per ounce
28 Nov: USD 16.68, GBP 13.45 & EUR 15.73 per ounce


Recent Market Updates

- Potential “Systemic Crisis In Eurozone” After Italy Votes No, Renzi Resigns
- Gold and Silver Will Protect From Coming Financial Crash – Rickards
- RBS Fail Bank of England Stress Test
- Peak Silver – Supply Deficits Mean Higher Prices
- Bail In Risk – €4 Trillion Banking System In Italy Poses Contagion Risk as Referendum Looms
- Gold Down 13.5% In 13 Days – Trump Bearish For Gold?
- War On Cash Just Got Real – India and Citibank In Australia
- Russia Gold Buying In October Is Biggest Monthly Allocation Since 1998
- Stocks, Bonds, Pension Funds “Will Be Wiped Out…” – Rickards
- Physical Gold Is A “Long-Term Position” as “Hedge Against Governments”
- Gold Sell Off On Fed Noise – “Interesting Times” To “Support Gold”
- Islamic Gold – Vital New Dynamic In Physical Gold Market
- Peak Gold Globally – “Bullish For Gold”

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mary mary's picture

Is this why the gold price has decreased the last few months?  Muslims not buying gold; muslims waiting on Sharia Vault Gold?

Always suspicious about things I can't see.  Physical deliveries and an increase in gold mining activity would appear to be two indications that more Muslims are actually investing in physical gold.  I don't like the idea of big warehouses where fork trucks move stacks of gold around from pile to pile, and then report, "See?  Your pile is pile #Za163154, and now all your gold is in your pile.  Aisle 59, second shelf from top, 17th pile from the left."

East Indian's picture

Invest in vaulted gold.

Then see it pole-vaulted to China.

Sledge750's picture

Well now...

 

If I was a nefarious politician/banker I'd start screaming:

 

Muslim terrorist are investing in gold, so gold investors must be terrorists!

 

We must stop people from investing USD in gold!

 

 

onwisconsinbadger's picture

Does anyone know what happened to Saddam Hussain and Gaddafi's gold ?

mary mary's picture

I wish I did.

Tony Blair knows what happened to Libya's gold.

I suspect George W. Bush knows what happened to Iraq's gold.

I suspect George Soros knows what happened to Ukraine's gold.

milking institute's picture

I would suggest to contact Gold Man Sachs for Details......

Stan522's picture

Is that her public policy, or her private policy.....?

 

I call bullshit. This is just a means to get re-elected and stay in power..... No one does a 180 degree turn like that and really means it.

TheMadNumismatist's picture

“one of the most important markets in the world: the gold market, an invest-able market worth an estimated $2.4 trillion”

 

Global stock markets about $70 Trillion, Bonds about $150 Trillion, so gold 1% of total yet “one of the most important markets” may be a little optimistic.

Herodotus's picture

For gold investment products to be Sharia-compliant, they must be juden frei.

Dragon HAwk's picture

So if the Mussies get gold, and use it,  does that mean that we will finally Defeat them and take it from them..  Doubt it..

 the problem with Gold is  you have to spend it on Something, eventually

Troy Ounce's picture

 

What has gold to go with that imaginary man in the sky?

Apparently humans cannot get it right. Something needs to be fake. Fake gold or fake reality.

Stupid fucks we are.

 

 

BobEore's picture

More rollout of WGC approved "fake news" stories from metal media mafiya types desperate for something to throw into the ring now that the TRUMP DECEPTION has thrown physical gold right into the gutter.

"...will have far greater access to the gold market than they have since the birth of modern finance, which has been primarily structured towards Western ideals.">>>?

"Muslims are now able to invest in gold bars and coins.">>>??

This just in - "Muslims" have always been "investing in gold bars and coins. Only thing that's changed is that some western banking types are whetting their chops for a chance at a "growth market" that they've been shut out of for a variety of reasons.

And they've now trained a generation of modern Muslims in occidental style finance and marketing. Meaning that there are all kinds of MBA's tasked with camoflaging the actual standards of tradition regarding riba and haram with a variety of smokescreens designed to achieve the appearance of opposing international finance capitalism(aka debt-based usury monopoly cartels)while turning the substance of the proposition entirely over to that entities' hands.

Likewise, a newly raised group of "scholars" are busy reinterpreting the tight strictures against usury/interest which have kept the banks out of the game - with a package of "reforms" that simply redefine the business model of monopoly finance as "sharia compliant" with the aid of modern marketing buzzwords and a froth of reference to this or that hadith.

Everybody's a winner - except the little guy, once again. Modern "Islamic Banking" is nothing but the antechamber where the marks are made to undress prior to being invited in for the main event - a date with the whore of Babylon all painted up in "sharia-compliant" colors.

Modern neo-liberal Islamist regimes in the likes of Turkey have simply joined forces with media and finance to collectively grab the real wealth of their citizens in the form of gold by inventing "gold schemes" which are nothing more than outright heists pulled off in broad daylight. Late to the party, ghouls like GOLD CORE apparently want to worm their way in to the apple with ra ra rhetoric short on the truth but heavy on the syrupy coating of "this will light a fuse under gold" type tabloid talk.

Umar Vadillo 'licked em for six' years ago with the Gold Dinar and Muamalat series. Still a good read... even though the barbarians have long since busted  through the gates!

Davy Crockett's picture

so, they want muslims to store their gold in vaults, so that the bankers can rehypothecate that gold into shit tons of paper gold that they can use to manipulate the gold market even more than it's manipulated currently.  Fuck me.

DaNuts's picture

I seem to remember that sharia law says that goods must come to market, i.e. not bought off the back of a cart beyond the city walls which would make most financial products haram.