Seems like big news:
More: http://www.goldcore.com/us/gold-blog/islamic-gold-vital-new-dynamic-physical-gold-market/By the end of 2016, 1.6 billion people will have a new gold investment standard for the first time in modern history. These 1.6 billion people are the Muslims of the world who constitute nearly 25% of the 6.9 billion people on the planet. This new ‘gold standard’ is the Sharia gold standard developed as part of a three-party collaboration between AAOIFI, the World Gold Council (WGC) and Amanie Advisors which will be announced Tuesday, December 6th.
The new Sharia or Islamic gold standard, ‘will provide guidance from a Sharia perspective on the usage of gold in financial and investment transactions for Islamic financial institutions and participants,’ the WGC states on its website as we reported back in May . ‘The Standard also aims to increase transparency and harmonisation regarding the use of gold in various market practices.’
The new standard is expected to act as an internationally recognised consensus on regular gold savings plans (gold accumulation plans), allocated and segregated gold bullion storage, gold certificates, physically-backed gold ETFs, certain gold futures and gold mining equities.
The World Gold Council stated in its October newsletter that they hoped the new standard will ‘bring all the strategic benefits of investing in gold to Islamic investors.’ The choice of assets that Muslims are currently able to invest in is considered to be ‘so limited’ by the WGC that they are expecting the benefits of a gold investment standard to be ‘even more pronounced.’
The new Sharia gold standard will set a future path in place for gold products and those who invest in Sharia-investible assets. Once the Standard is announced on December 6th, we are likely to see increased development of new products due to the increased customer base and some diversification amongst Shariah-compliant offerings which will likely offer options for savings, hedging and diversification. So far, none of these things have been available on a standard Sharia compliant basis.
Natalie Dempster has been quoted by Reuters stating that the new guidelines for holding gold-backed products may be additionally appealing to Islamic banks who are/will be required under Basel III rules to increase the amount of High Quality Liquid Assets (HQLAs):
“Gold for its nature could fit into HQLA buffers that Islamic banks could hold…Since the financial crisis, banks have been required to set aside pockets of so-called high-quality liquid assets to protect them against another systemic liquidity crisis…Basel gave national supervisors in Islamic jurisdictions the right to define high-quality liquid assets themselves. And I think gold will fit very well there. It is an extremely liquid market.”
New gold standard
The new Sharia Gold Standard is set to be announced on the 6th December at the World Islamic Banking Conference. “Shariah Standard on Gold” will provide “guidance from the Shariah perspective on the usage of gold in financial and investment transactions for Islamic financial institutions and participants,” according to Natalie Dempster of the World Gold Council.
It is believed that it will state that gold investments must be backed by physical gold. In truth, whilst there have been some draft rounds of the Standard and quite a bit of publicity, no one knows what is set to be revealed in the ‘guidance’.
It may still exclude gold futures contracts, a draft by the WGC states that whilst gold as a currency can be traded on a spot basis, however if it is seen as a commodity then it could be the subject of a future sale under the principle of salam, or deferred delivery sale.
The gold standard draft will likely approve holding gold in ETFs, derivative contracts, investment accounts and Islamic bonds.
What the standard will not include is guidance on the sourcing of gold, which is unsurprising in some respects as their is nothing directly about this in the Quran. However, it does require its followers to be ethical – something that is an important issue in the gold market these days. “It will provide clarity on gold’s use in financial services and harmonise the relevant rules across markets, thereby creating greater access to gold,” said Natalie Dempster, Managing Director, Central Banks and Public Policy, WGC.
Overall the Standard is expected to achieve the following:
- Increase the amount of available liquid Shariah-compliant instruments
- Increase the diversity of available liquid Shariah-compliant instruments including gold bullion and some other gold related investments
- Facilitate greater consumer choice by expanding the range of Shariah-compliant financial solutions
- Greater role for the Islamic finance industry in global gold price discovery