World Gold Council sees huge potential for gold in Islamic finance

DUBAI: The Islamic gold market is set to expand, develop and flourish – benefiting investors, product providers and the entire Islamic finance world, the World Gold Council has said in a report citing research commissioned by the council.
The research was conducted as part of the council’s efforts to help develop a market for Shari’ah-compliant gold-backed products following the launch of the AAOIFI Shari’ah Standard on Gold in 2016. Detailed qualitative and quantitative research was conducted across four predominantly Muslim markets: Turkey, Saudi Arabia, United Arab Emirates and Malaysia.
The aim of the research was to understand how investors view Islamic finance, their attitudes towards gold and their preferences for gold-backed products. It uncovered valuable insights that the council believes will help banks and other institutions to launch gold-backed financial products that meet the most appeal to Islamic investors.
The survey showed Islamic products are highly regarded in these countries. Most respondents prefer some exposure to Islamic finance and many are likely either to start investing in Shari’ah-compliant financial products or increase their holdings over the next 12 months.
Almost half of all respondents believe Islamic investments are safer and more ethical than conventional products. And most believe that investing in gold can protect their wealth and generate long-term returns.
Investors are attracted to a range of gold investments – bars and coins, vaulted gold and gold-backed ETFs – and there is potential for growth across the range of gold products. Bars and coins are considered simple, familiar and tangible but investors would welcome greater clarity around ease of trading, fees and purity.
Vaulted gold is considered safe, convenient and accessible but investors would welcome vaults close to home or in trusted jurisdictions, settlement in physical gold and speed at point of sale. Similarly, gold-backed ETFs are considered secure, easy to trade and similar to stocks and shares, but investors would welcome settlement in physical gold rather than cash and, possibly, clearer terminology.
On average, gold bars and coins account for a similar proportion of investments as gold investment accounts – albeit considerably lower than gold jewellery. Gold ETFs take a far smaller share. Indeed, they account for the smallest share of the average portfolio, except in Turkey, where investors are more likely to invest in a gold-backed ETF than in non-gold commodities.