Gold has stood the test of time as a precious metal that is rare and highly sought after. Its price this month only proved its enduring popularity, surpassing the US$1,900 per ounce mark less than two years after breaking the US$1,000 per ounce barrier in late 2009.
In 2011 the commodity shows no sign of decline, with a 29% increase, and looks to be headed for its 11th straight annual gain. Some skeptics continue to forecast the gold bubble bursting in the near future but many remain optimistic of continued appreciation in gold prices.
Managers of gold funds are confident that the price of this valuable commodity will surge as long as the values of key currencies remain on a decline. Demand is also on the rise. China, the world’s second largest economy, is reportedly on a gold buying spree as a hedge against inflation and other economic concerns.
This has resulted in China’s share of global demand for gold rising from 6% in 2000 to 18% in 2010. In 2009, China announced that it had purchased 454 tonnes of gold over the past six years. So strong is the continued demand that gold vending machines will soon be available in Beijing for customers to buy the precious metal.
Another emerging economic powerhouse that is attracted to this precious metal is India. It has been reported that India’s households own the largest amounts of physical gold in the world, totaling more than 15,000 tonnes. India’s fascination with the precious metal extends to its sovereign, with its central bank purchasing 200 tonnes of IMF gold in late 2009.
Another big buyer is Russia, which has bought about 400 tonnes on the open market over the past five years. The latest emerging economy to join the fray is Mexico, whose central bank acquired a total of 93.3 tonnes of gold this year. According to the World Gold Council, Mexico’s procurement of 78.5 tonnes in March made it the largest monthly purchase by a central bank in at least a decade.
Gold is generally prohibited in Islamic finance as it treats the commodity as a form of money. However there are several Islamic gold funds that buy and store physical gold, thus eliminating the elements of leveraging, hedging, lending, derivatives or foreign exchange.
The rising price of gold has resulted in Shariah compliant gold funds producing top returns for the month of August. Data provided by Eurekahedge reveals that four of the top 10 monthly returns of global Islamic funds are invested in gold; with the highest providing a return of 12.35%.