Market Update Investor insights: gold in Islamic investment

Sectors: Market insights, Demand, Investment

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Following the launch of the AAOIFI Shari’ah Standard on Gold in 2016, we have engaged with Islamic banks and financial institutions to develop the market for Shari’ah-compliant gold-backed products.1 As part of this we undertook research to understand how investors view Islamic finance, their attitudes towards gold, and preferences for gold-backed products. The insights summarised in this update will help banks and other institutions to launch gold-backed financial products that meet the needs of modern Islamic investors.

Gold in Islamic finance

Gold has a long association with Islamic finance. For centuries, the gold Dinar was the currency and trading standard of the Islamic world. But as Islamic finance grew and developed, so did the need for clarity around the Shari’ah treatment of gold.

In 2016, the rules for trading gold were codified in a single Standard: the AAOIFI Shari’ah Standard on gold. This removed one of the barriers preventing the development of gold-backed products in Islamic finance. 

Since then, the World Gold Council has been working with Islamic banks and other financial institutions to further develop this market. As part of our engagement, in 2018 we partnered with global research agency Kantar TNS to conduct a comprehensive survey of 4,000 retail investors in four predominantly Muslim markets – Saudi Arabi (KSA), United Arab Emirates (UAE), Turkey and Malaysia – to gauge their attitude and approach towards Islamic investing and gold.2

Islamic investment trends

Islamic finance is a large market. In 2017, total assets surpassed US$2tn for the first time. And it is growing: some estimates suggest a long-term compound average growth rate of over 9%.3

This positive outlook is reflected in the findings from our research. Two-thirds of those we surveyed would prefer their investment holdings to include Islamic products. Just under one third, on average, would prefer to hold purely Islamic investments (Chart 1).

Chart 1: Preference for Islamic investments

Chart 1: Preference for Islamic investments

Sources: Kantar, TNS, World Gold Council; Disclaimer

 

1In 2016, the Accounting and Auditing Organisations for Islamic Financial Institutions (AAOIFI) and the World Gold Council collaborated to develop an international Shari’ah Standard for gold. For more information, visit shariahgold.com

2For detail on the research methodology and sample, see World Gold Council, 'Gold in Islamic finance: retail investor insights’, 2018

3IFSB, Islamic Financial Services Industry Stability Report, 2018

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