Irish Gold Bullion Platform Meets New Shariah Gold Standard
An institutional gold trading, delivery and storage platform created by gold specialist GoldCore meets the new “Sharia gold standard”.
The announcement comes following the launch of the Shariah Gold Standard by the World Gold Council (WGC) and Accounting and Auditing Organization for Islamic Financial Institutions (AAOIFI) yesterday. Both the AAOIFI and the World Gold Council have examined the GoldCore institutional offering and are happy that it meets the new ‘Sharia gold Standard’.
The sharia gold standard announced yesterday allows the over 110 million investors in the Islamic world to invest in vaulted gold, gold savings plans such as GoldCore’s GoldSaver, gold certificates and physical gold ETFs.
The Shariah compliant gold investment solution providing Islamic financial institutions access to the global precious metals market will be launched by GoldCore, a specialist in gold bullion trading, logistics and storage, in Q1 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.
“We look forward to launching our comprehensive gold investment solution and offering it to qualifying Islamic financial institutions in 2017,” Flood said.
At the World Islamic Banking Conference yesterday more details of the new shariah gold standard were announced including details of the gold products that are permissible.
The shariah 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.
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 standard signals a changing dynamic in the gold market. 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, the Irish Gold Bullion investment platform. 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
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