Thursday, December 8, 2016

New Rules For Gold Investing May Open The Market To 1.6 Billion Muslims

‘Ground breaking initiative for Islamic investors” and the gold industry: WGC


By Myra P. Saefong
MarketWatch
December 8, 2016

The gold market saw the establishment this week of a new set of rules that has the ability to shake up the industry.

The launch of the Shariah Standard on Gold, which offers guidance on the use of modern gold financial products that meet the requirements of the religious law governing members of Islam, opens the market for the yellow metal to potentially significant demand from the Muslim world.

The Accounting and Auditing Organisation for Islamic Financial Institutions (AAOIFI) and the World Gold Council announced the issuance of the Standard on Monday.

“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 a statement.

Gold futures for February GCG7, +0.17% climbed Wednesday to snap a two-day skid and settle at $1,177.50 an ounce.

Before the Standard, there was a lack of clarity when it came to Islamic investment in gold, the WGC said. Investment in gold was permissible provided that relevant Shariah rulings are satisfied including those relating to taking possession and proper calculation of Zakah [an Islamic requirement to contribute to charity], among others,” the WGC said.

Gold is also one of Islam’s Ribawi items and “practitioners need to be cautious when transacting in gold to ensure they meet all Shariah requirements,” according to the WGC. Ribawi refers to six substances that are sold by weight and measure, including gold.

In a market update Tuesday, GoldCore’s research executive Jan Skoyles and Editor Mark O’Byrne pointed out that as many as 1.6 billion Muslims in the world, or 25% 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.”

The Shariah Gold Standard allows Islamic investors to invest in vaulted gold, gold savings plans, gold certificates, physical gold exchange-traded funds and gold-mining shares within certain Shariah parameters, according to GoldCore.

GoldCore will launch a fully-compliant Shariah bullion investment offering in the first quarter of next year.

The standard will likely increase diversity in the number of available Shariah gold-compliant investment products, spark greater emphasis on the role of physical gold transactions and Islamic finance will have “a greater say in the setting of the gold price,” Skoyles and O’Byrne said.

But the rules could take another six months to really start affecting short-term and medium-term gold prices, said Chintan Karnani, chief market analyst at Insignia Consultants.

Longer term, the market will monitor the amount of investment in Shariah Gold Standard products to “determine whether they pose a serious threat” to the current ways gold prices are established, he said.


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