Gold in Shari’ah investments: Hajj fund perspective

Understanding gold’s role in Hajj funds

Around 240 million Muslims in Southeast Asia aspire to perform the annual Hajj pilgrimage. Serving this community, Hajj savings funds carry a dual mandate: to safeguard pilgrims’ deposits and to generate returns that preserve purchasing power over what can be decades-long waiting periods. This report examines the case for gold as a strategic, Shari’ah-compliant asset class within Hajj fund portfolios. We focus on Badan Pengelola Keuangan Haji (BPKH) in Indonesia and Lembaga Tabung Haji (LTH) in Malaysia – two of the largest Hajj funds in Southeast Asia.

Our analysis finds that a modest gold allocation of 5–15% consistently improves portfolio risk-adjusted returns, reduces drawdowns during periods of market stress, and provides a natural currency hedge against pilgrimage costs which are denominated in Saudi riyals, pegged to the dollar. Our analysis suggest that gold deserves consideration as a strategic asset, rather than a tactical holding within the equity sleeve of a Hajj fund’s investment mandate.

Hajj funds in Southeast Asia

A brief introduction

Hajj savings and pilgrimage funds are established to help Muslims accumulate savings for the annual pilgrimage to Mecca. These funds, hereinafter referred to as Hajj funds manage Hajj-related assets in accordance with Sharia investment principles. 

In Southeast Asia, Hajj funds, such as those in Indonesia and Malaysia, are often state-administered, member-based funds, in which Muslim citizens in the country register for the pilgrimage and deposit a fixed amount into their accounts. The pilgrim receives a queue number to indicate when their turn is to perform the Hajj, often involving a lengthy waiting period. 

Despite uncertainties over recent years, assets in Hajj funds have continued to grow. As an example, assets of the Badan Pengelola Keuangan Haji (BPKH)¹, the state-administered Hajj fund for Indonesia, reached IDR 238 tn as of end 2025 (Chart 1). Since 2020, assets in BPKH grew on average 10.3% per year. 

Understanding how Hajj funds operate

To understand the Hajj fund operation, we illustrate the lifespan of one of these funds. For instance, a registered pilgrim is required to make an initial deposit of IDR 25m (approximately US$1,500) when registering for Hajj departure queue number, and the number assigned at registration determines the pilgrim’s wait. In Indonesian provinces, this can vary from 16 to 38 years.

As of early 2026², the required total funding to send an Indonesian pilgrim to Mecca was approximately US$5500. While 62% is paid by the pilgrims directly, the remaining 38%, known as benefit value, is generated through investments in the Hajj fund (Chart 2). 

The Hajj fulfilment pipeline in Indonesia varies by province; it is no surprise that Java has the highest number of registered Hajj pilgrims. Based on currently available data, unfulfilled pilgrims from three major Java provinces account for 56% of Indonesians (Chart 3). This indicates need for further Hajj fund growth as the pilgrimage pipeline continues to build. 

The strategic role of gold in Hajj fund portfolios

Hajj funds maintain predominantly fixed income (sukuk)-heavy portfolios. Around half of these portfolios are allocated to sukuk³ - Islamic fixed income instruments. Another 10~20% are allocated to Shari’ah-compliant equities, and 10~20% to real estate and other assets. Malaysia’s Tabung Haji,⁴ for example, was noted to allocate 57% in sukuk, 27% in equities, and the remaining allocation to real estate (7%) and money market instruments (9%) according to its 2024 financial report.

Gold can play a valuable complementary role in Hajj fund portfolios. These sukuk-heavy funds demonstrate limited diversification benefits from equities and real estate. Gold could enhance overall returns, preserve the real purchasing power of pilgrims' savings, and support the long‑term mandate to deliver stable, sustainable returns.

A long-term and stable source of return

Historically, gold has provided stable returns during various economic cycles (Chart 4). Its diverse sources of demand give gold a particular resilience and the potential to deliver solid returns in various market conditions. During periods of economic uncertainty it is the counter-cyclical investment demand that drives up the price of gold, during periods of economic expansion, the pro-cyclical consumer demand supports its performance. 

Meanwhile, gold has significantly outperformed all major currencies and commodities. A key factor behind this robust performance is that the above-ground stock of gold grows slowly over time, at a rate of just 1.7% per year over the past 25 years. In contrast, the money supply of currencies has increased at a significantly higher rate (7.3%) over the same period.⁵

Unique diversification benefits

In addition to these benefits, gold is key to diversifying Hajj fund’s equity exposure. Chart 5 reveals’ gold’s unique correlation with Shari’ah equities: negatively correlated during periods of stress when Shari’ah equities fall by one standard deviation; almost uncorrelated during normal conditions; and positively correlated when equities rally. In fact, this unique characteristic between gold and equities can also be seen in other regions. 

Compared with global Shari’ah equities, gold provides diversification and stabilising benefits. In ten worst months for global Shari’ah equities over the past ten years, gold posted positive returns in eight of those ten months (Chart 6). 

An effective portfolio enhancer 

These properties enable gold to improve the risk-adjusted returns of a hypothetical Hajj fund portfolio. To illustrate gold’s impact, we constructed a simplified version – global sukuk (60%), global Shari’ah equities (30%) and global Shari’ah REITS (10%) – as a hypothetical benchmark Hajj fund portfolio. Gold’s allocation comes from proportionally reducing the weight of other assets.

Across 1,000 portfolio simulations, even a modest 5% allocation to gold consistently improved risk-adjusted returns within a Shari’ah-compliant portfolio. As shown in Chart 7, portfolios with gold achieved comparable or higher returns with lower levels of risk relative to portfolios without gold, enhancing portfolio efficiency within a Hajj fund investment.

Conclusion

Our analysis shows gold’s versatility as an asset class, in this case within liability driven investing strategies. We noted that sukuk instruments and gold respond to similar drivers and saw that gold provides downside protection against equity drawdowns. Gold’s versatility is highlighted below:

• Providing stable returns and a hedge against fiat currencies
  
  Gold has generated an annual average return of 14% over the past 20 years in IDR. pilgrimage costs are denominated in Saudi riyals, which are pegged to the US dollar and as globally priced in dollars, an allocation can act as a natural hedge against currency depreciation, helping align asset values with future expenditure obligations.
   

• Protecting portfolios
  
  Gold has historically exhibited unique correlations with Shari’ah equities in various market conditions, helping to stabilise portfolio performance during periods of market stress. For Hajj funds with long-term horizons and limited tolerance for capital impairment, this resilience supports capital preservation across cycles.

  Our analysis shows that incorporating gold improves portfolio risk-adjusted returns. This outcome is not only consistent with the capital-preservation mandates typical of such endowment but it also enhances portfolio efficiency without compromising liquidity.

Footnotes

¹For more, see: Hajj Financial Management Agency.

²For more, see: Hajj Financial Management Agency Benefit Value.

³Sukuk is a Shari’ah compliant bond-like instrument in Islamic finance. Instead of a debt obligation, it provides ownership of the underlying asset. It allows for debt financing without interest.

⁴For more, see: Malaysia Lembaga Tabung Haji.

⁵Money supply includes M2 from five countries: US, China, ECB, Japan, UK, all in US$, indexed to Q3 2000. The methodology determining the above-ground stock of gold can be found here: How Much Gold Has Been Mined? | World Gold Council.