Gold has become an acceptable commodity for backing Sharia-based financial products, after rules about using the metal as an investment were established for the first time.
The new rules, approved on November 19 allow gold to be used in the US$1.88 trillion Islamic finance business, said the Accounting and Auditing Organisation for Islamic Financial Institutions (AAOIFI), which developed the standards assisted by the producer-funded World Gold Council (WGC).
The agreement resolves a long-standing debate over whether gold was a currency or a commodity for the purposes of business conducted in accordance with Shariah rules, meaning institutions shied away from the precious metal.
“The complexity of Islamic attitudes toward gold products has led to a scattered and fragmented set of rulings,” said the WGC.
“This lack of uniformity is a major impediment to the development of gold financial products in Islamic finance. Creating harmonised and authoritative Sharia guidance for gold is imperative therefore, if the asset class is to become more widely accepted by Islamic investors.”
The SPDR Gold Trust, the biggest exchange-traded fund backed by bullion traded under stock symbol GLD, is likely to qualify, and the standard may open new demand to central banks
Dr Hamed Hassen Merah, the AAOIFI’s secretary general, commented: “This standard covers Shariah-compliant mechanisms for dealing and investing in gold…. Hopefully, this would represent a progressive stride for the Islamic finance industry.”
Gold joins equities, real estate, Islamic bonds (sukuk) and takaful (insurance) as vehicles approved for Islamic finance, according to the Bahrain-based AAOIFI.
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