Gold has always enjoyed a close connection with Islamic culture. Now, thanks to the Shariah compliant gold standard, the precious metal is playing a vital role in the future of Islamic finance.
AAOIFI secretary-general Dr Hamed Hassan Merah said the introduction of the standard was to ensure there were Shariah compliant investment solutions available for individuals and to help Islamic financial institutions manage liquidity. It is also assisting Islamic financial institutions attract more clients by enabling the creation of a broader range of products.
For institutions wishing to offer saving, hedging and diversification products, there are some compelling findings about holding gold within a Shariah compliant portfolio, as the World Gold Council concluded in its research paper, ‘Advancing Islamic Finance Through Gold’. The findings are summarized in the following.
1. Gold is a highly effective diversification tool
Gold’s correlation to major Islamic equity indices ranges from only 0.13 to -0.01, which means there is almost no linkage in performance.
In relation to Sukuk and Islamic REITs, gold exhibits a correlation of 0.02 and 0.1 respectively.
This lack of relationship can make gold a robust diversifier, helping investors minimize risk, reduce volatility and potentially enhance returns.
2. Gold exhibits relatively low volatility
Gold is less volatile than major Islamic equity indices, REITs and the Takaful index.
While gold can be more volatile than Sukuk, it is potentially a safer asset class because it carries no credit risk or third-party liability.
3. Gold offers strong risk management features
Gold’s behavior as a risk management tool is particularly significant for Islamic investors given derivative-based risk management instruments such as credit default swaps and conventional futures or forwards are not Shariah compliant.
4. Gold is Shariah compliant whereas many traditional safe haven assets are not
Gold is perhaps best known as a refuge during times of geopolitical and financial turmoil.
US Treasuries, conventional money market funds or other developed market sovereign bonds can also be favored during times of market turbulence. However these, like many risk management tools, are not Shariah compliant.
Gold, on the other hand, now offers a larger and more liquid Shariah compliant asset pool than what has been traditionally available as a safe haven.
5. Gold is a long-term preserver of wealth
Gold’s widely recognized role as a preserver of wealth may be especially pertinent in Islamic finance.
Gulf-based investors generally hold positions denominated in US dollars or a currency pegged to the dollar. However Southeast Asia-based investors tend to denominate their positions in local currency, usually the Malaysian ringgit or Indonesian rupiah. These currencies have historically fluctuated against G10 currencies and have tended to underperform during periods of severe market instability.
Adding gold to a ringgit or rupiah-denominated portfolio can greatly moderate exchange rate risk.
How Australia’s precious metals specialist The Perth Mint is uniquely placed to facilitate investment in Shariah compliant gold
About The Perth Mint
Owned 100% by the government of Western Australia, The Perth Mint operates under a unique guarantee contained within an Act of parliament, the Gold Corporation Act 1987. This exclusive government guarantee covers fully the offerings and obligations of The Perth Mint’s depository program.
In addition to its one-of-a-kind guarantee The Perth Mint provides peace of mind that every ounce bought is completely backed by physical precious metal.
The guarantee is further underpinned by the assurance that Western Australia holds the highest possible short-term S&P credit rating of ‘A1+’.
Much more than a traditional mint, The Perth Mint is one of the world’s largest fully integrated precious metals enterprises which:
• Refines more than 92% of Australia’s newly mined gold.
• Secures billions of dollars of wealth for central banks, sovereign wealth funds, pension funds and individuals from across the globe within the southern hemisphere’s largest network of state-of-the-art vaults.
• Has produced the highest purity gold bullion for almost 120 years.
Shariah compliant products
The Perth Mint’s allocated and pool-allocated products have been endorsed as Shariah compliant by highly respected Shariah advisory consultants Dar Al Sharia, in accordance with the Shariah Standard on Gold set by AAOIFI.
The products are offered via financial institutions and authorized distributors, which can share the benefits of The Perth Mint’s expertise and unique offerings.
The Perth Mint’s online platform at a glance
The Perth Mint’s Depository Online platform is easily configurable as a white-labeled service and can be tailored to individual needs.
Enabling 24/7 live pricing, the mobile phone-friendly platform is underpinned by 128 SSL encryption which provides the highest level of security, with transactional confidentiality assured.
Through The Perth Mint’s close relationship with the World Gold Council, it can facilitate the training of staff and product marketing among existing and new clients.
* The Shariah Compliance Pronouncement on Tradability of Gold and Silver Products, made by Dar Al Sharia with regards to The Perth Mint investment products, may be found at perthmint.com/ShariaCompliance.
Further details about The Perth Mint can be found at
This article is contributed by The Perth Mint.