New Market Opens up as Gold Standard Approved for Islamic Finance

Following the acceptance of gold as a means of trading by the group that sets standards for the industry adopted Shariah-compliant rules, the precious metal is now acceptable for the first time as an investment in Islamic finance.

The Accounting and Auditing Organization for Islamic Financial Institutions said Monday in a statement that the rules approved on Nov. 19 would now allow gold to be used in the $1.88 trillion Islamic finance business. The new rules could spur demand for “hundreds of tons” of gold, said the producer-funded World Gold Council which helped the AAOIFI in the development of the standards for gold use.

Mohd Daud Bakar, a Shariah scholar, said at a press conference in Dubai Monday that the standard may open new demand to central banks, and the SPDR Gold Trust, the biggest exchange-traded fund backed by bullion traded under stock symbol GLD, will probably qualify. He said that since here is a requirement for a physical backing, Comex gold futures wouldn’t qualify.

“We fully expect to announce imminently that GLD does qualify,” Natalie Dempster, a managing director of the World Gold Council, said at the conference. She also said that qualified to be traded would be physical gold bars and coins which may also qualify. Dempster said that according to the rules, a bank that is getting engaged in selling gold has to demonstrate it can provide the exact gold being sold within one day or has to offer same-day settlement. According to Hamed Hassan Merah, AAOIFI secretary general, the same rules and standard also applies to silver.

“This is a ground-breaking initiative for Islamic investors and for the gold industry at large,” Aram Shishmanian, chief executive officer of the World Gold Council, said in the joint statement. “We are delighted that there is now definitive Shariah guidance on the permissability of investing in gold.”

According to the Bahrain-based AAOIFI, joining the approved vehicles for Islamic finance – equities, real estate, Islamic bonds (sukuk) and takaful (insurance), would now be gold. The AAOIFI said that after the Malaysian central bank terminated its short-term sukuk issuance program, Sukuk volume slipped 1.4 percent in 2015.

“The time has come for gold instruments in Islamic finance,” Mark Mobius, executive chairman of Templeton Emerging Markets Group, said Monday in a World Gold Council report accompanying the statement. The report didn’t say if Templeton plans to invest in the product.

(Adapted from Bloomberg)

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Categories: Economy & Finance

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