Gold is now an accepted Sharia investment under new Islamic banking rules

Caitlin Morrison
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(FILES) Gold bars is displayed at Shinha
Investors shied away from gold before as the Sharia rules weren't clear (Source: Getty)

Gold can now be used as a commodity to back Sharia-based financial products, with rules about using the metal as an investment set out for the first time.

The World Gold Council announced the new Sharia gold standard, which sets out the way in which financial institutions can apply Sharia principles in the direct physical handling of gold and in using the metal as an underlying asset in a transaction.

Previously, there was debate over whether gold was a currency or a commodity for the purposes of business conducted in accordance with Sharia 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," the Gold Council said in a statement.

"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."

Dr Hamed Hassen Merah, secretary general of the Accounting and Auditing Organisation of Islamic Financial Institutions, which worked with the World Gold Council to agree the new rules, said: “This standard covers Sharia- compliant mechanisms for dealing and investing in gold.... Hopefully, this would represent a progressive stride for the Islamic finance industry."

In the first half of this year, gold was one of the best-performing assets, with prices rising to over $1,300, however the metal has dropped back to below $1,200 on recent strength in the dollar, which has tempered interest in safe haven investments.

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