Gold and Islamic finance

Goldhub blog

Gold and Islamic finance

Andrew Naylor
Director, Central Banks and Public Policy
World Gold Council

Posted:

The Islamic finance market is now valued at more than US$2tn and growing at a rapid rate. The association between Islamic finance and gold dates back many centuries but, until recently, Islamic savers were unclear whether they could invest in gold products. In 2016, the AAOIFI Shari’ah Standard on Gold, developed in collaboration with the World Gold Council, provided the clarity that investors needed. 

We recently followed up on that guidance with in-depth research into investor attitudes towards gold.

More than three-quarters of the Islamic investors we surveyed would consider increasing their exposure to Islamic investments in the near future. This bodes well for gold, which is widely viewed as a long-term investment, whose characteristics chime well with Islamic finance – it is a physical asset, is a liquid market, outperforms many other Islamic assets and has little correlation to other financial instruments. Importantly, gold is a Shari’ah-compliant safe haven asset; something that was previously lacking in Islamic finance. Many conventional safe haven assets are interest-bearing and are therefore not permissible under Shari’ah rules.

Gold also plays a key role in a new area of Islamic finance, robo-advice. The robo advisory market is growing, and some estimates suggest that more than $200bn of assets are now managed by robo advisors. 

US-based Wahed provides Islamic investors with access to the robo advisory market. A pioneer in its field, Wahed gives retail investors access to low-cost, diversified Halal products. And up to 10% of its portfolios are usually allocated to gold.

As Global Head of Portfolios Samim Abedi explains: “Gold is really important for us, as it is one of the few ways that we can diversify our portfolios and increase risk-adjusted returns.”

“We were able to invest in gold before the AAOIFI Standard on Gold was adopted, but the AAOIFI Standard makes it much easier to do so as it provides greater comfort to our scholars,” he adds.

Read more in Gold Investor