IFN Sector Analysis: Gold

Gold has a long history as a currency in Islam, but its use as a commodity was less certain until the AAOIFI Shariah standard on gold was established in 2016. EMIR ZAINUL highlights the latest developments in the gold sector over the past year.

Overview
The AAOIFI Shariah standard on gold developed in collaboration with the World Gold Council (WGC) offers definitive guidance on the use of gold in Islamic finance.

The standard was launched in 2016 and has since acted as a catalyst for the development of new Shariah compliant gold products including gold investment accounts, physical gold exchange-traded funds (ETFs), spot contracts and regular gold savings plans.

In H1 2023, gold increased by 5.4% in the US dollar, closing in June at US$1,912.25/oz, according to the WGC.

Following gold’s positive returns in H1 2023, the WGC expects gold to remain supported on the back of range-bound bond yields and a weaker US dollar. The council said gold should experience stronger investment demand if economic conditions deteriorate. Conversely, a soft landing or much tighter monetary policy could result in disinvestment.

However, given the inherent uncertainty in predicting the global macroeconomic outcome, the WGC believes that gold’s positive asymmetrical performance can be a valuable component to investors’ asset allocation toolkit in H2 2023.

Notable developments
Asset management
In May 2023, Azimut Egypt launched Shariah compliant gold metal fund az-Gold. The net asset value of the fund is calculated based on the gold price announced by the Egyptian Exchange.

Royal Mint’s Responsibly Sourced Physical Gold ETC (exchange-traded commodity) was endorsed as Shariah compliant by Amanie Advisors in March 2023.

Quantum Metal, a Shariah compliant gold investment firm, plans to expand to 60 countries within two years. At the moment, the company operates in 13 countries including the UK, Australia, the US, Cambodia, Indonesia, the Philippines and Thailand.

Al Rajhi Banking & Investment Corporation Malaysia is now offering AHAM Asset Management’s AHAM Shariah Gold Tracker Fund, a retail feeder fund that aims to provide investors with investment results that track the performance of gold prices. The fund feeds into an ETF, namely the TradePlus Shariah Gold Tracker that is managed by AHAM Capital.

Fintech
In September 2022, ComTech Gold, which issues gold tokens, received its Shariah compliance certificate from Amanie Advisors. Meanwhile, Gilded also received Shariah compliance certification from Amanie Advisors for its physical gold products in May 2023.

In June 2023, Kinesis Monetary Indonesia (KMI) received its Gold Depository Management Approval from the Indonesian Commodity Futures Trading Regulatory Agency at the Ministry of Trade. The agency’s checking process ensures that the physical gold kept in KMI’s warehouse is genuine physical gold accredited by the London Bullion Market Association with a purity level of 999.9.

Meanwhile, Kinesis Money in April 2023 listed its native gold and silver digital currencies, namely Kinesis gold and silver, on the Emirex exchange. The digital currencies are backed one-to-one by physical gold and silver bullion.

New York-based Shariah compliant fintech investing platform Wahed in January 2023 debuted a debit card that lets users deposit funds with an exchange-traded commodity that tracks the price of gold.

Digital wealth management app Versa in December 2022 launched Versa Gold, its first Shariah compliant fund that closely tracks the performance of the gold price. The Versa Gold fund is managed by AHAM Capital, and its underlying fund is the Affin Hwang Shariah Gold Tracker Fund.

In August 2023, Ihsan Digital Nusantara partnered with Industri Telekomunikasi Indonesia to launch Shariah compliant digital gold platform iMas on INTI Cloud.

Other developments
Bursa Malaysia planned to launch Bursa Gold Dinar in Q2 or Q3 2023, and was in the final stages of the project, including finalizing agreements with distribution and merchant partners. Bursa Malaysia had, in July last year, first announced its plan to launch a digital gold dinar solution.

The Dubai Gold & Commodities Exchange (DGCX) waived fees for its Shariah compliant spot gold contract from the 21^st August until the 31^st December 2023. During this period, the DGCX waives all DGCX and Dubai Commodities Clearing Corporation fees, including those associated with trading, clearing and delivery.