Once the Sharia Gold Standard is adopted, it’s very likely 100 million Islamic gold investors in key Islamic countries like Bahrain, Qatar, Indonesia, Saudi Arabia and Malaysia will start aggressively buying gold investment products and this could push gold prices higher – a lot higher.
The comments above and below are excerpts from an article by Kim Iskyan (TrueWealthPublishing.Asia) which may have been edited ([ ]) and abridged (…) by munKNEE.com (Your Key to Making Money!) to provide a faster & easier read. Register to receive our bi-weekly Market Intelligence Report newsletter (see sample here , sign up in top right hand corner.)
…Islamic investors have shied away from gold-related financial products…because religious laws have been offering conflicting advice about gold investments…However, a “Sharia Gold Standard” – which will clarify and streamline Islamic gold-investing rules – is on track to be implemented by the end of the year. This means that the approximately 100 million active Muslim investors will soon have gold as an investment option.
Once the Sharia Gold Standard is adopted, it’s very likely asset managers in key Islamic finance countries like Bahrain, Qatar, Indonesia, Saudi Arabia and Malaysia will start aggressively offering gold investment products like ETFs – which are already wildly popular in the rest of the world…
An October 10 press release by the developers of the gold standard – the Bahrain-based Accounting and Auditing Organisation for Islamic Financial Institutions (AAOIFI) and the London-based World Gold Council (WGC) – announced the release of the standard’s “exposure draft.” After accepting public feedback and suggestions, the organisations will meet in mid-November to finalise the gold standard draft, and set the implementation schedule, expected to be around year-end.
Muslim gold buyers have the potential to be a force in the global gold market
…At current prices, if Islamic financial institutions allocate to gold just 2% of the assets they manage, it would equal roughly 1000 tonnes of extra demand…[and] this new demand could help push gold prices higher in 2017 and, while this initial allocation may be a one-off event…it will be an ongoing source of gold demand into the future. Standard and Poor’s projects the industry could reach US$5 trillion by 2020. Some industry forecasts say that the number will be as much as US$6.5 trillion in four years.
Despite this rapid expansion, however, Islamic banking only accounts for a small fraction of the world’s investment assets – even though Muslims account for nearly 1/3 of the world’s population. A big problem has been the lack of standardization in the products available due to different interpretations of what’s acceptable under Sharia law. The new Sharia gold standard, along with other investment standards in the works, should help.
Under Sharia law, gold is generally considered a “Ribawi item,” meaning Muslims can’t trade it for future value, or for speculation. They can, however, use gold as a currency and own it as jewelry. Whether Muslims can trade gold as a commodity has been an ongoing source of debate among Islamic scholars. The new standard seeks to solidify agreement among scholars.
As Yusuf DeLorenzo, an AAOIFI member, told me in July, “The hesitation about investing in gold when credible Sharia standards are unavailable is nearly universal in the Islamic world. On the reverse side of the equation, however, gold has historically been the choice of individual Muslims desirous of preserving wealth and value.”
Given its long history as a currency and storehouse of wealth among Muslims, expectations are high that the Islamic finance industry, and Muslim investors, will quickly embrace gold investments. This would include gold savings plans, gold certificates, physically-backed gold ETFs, certain gold futures and gold mining equities.
Gold’s pullback to its 200-day moving average offers a good entry point
The added demand expected from Islamic investors comes as gold has pulled back from a big 2016 rally. It was consolidating around its 200-day moving average – a popular measure of a market’s long-term trend – last month but it has since climbed above the 200-day moving average and is now up 23% for the year.
The catalysts for gold to climb higher are still there. Central banks’ zero interest rate policies and bouts of global currency instability are driving investors to gold’s stable embrace. Also, global political uncertainty – like the Brexit vote and the crazy U.S. election – has added to gold’s allure.
All indications point to gold’s 5% correction since mid-summer as a pullback in an ongoing, and historic, bull market.
The fundamental reasons for gold’s long-term bull market remain in place, and 100 million Islamic gold investors are waiting in the wings to start buying…[As a result], investors should buy gold at these lower prices while they still have the chance.
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