Momentum for Shariah-compliant gold is growing in Malaysia and other nations.
PETALING JAYA: In a small town an hour’s drive from Malaysia’s capital, a new, high-security vault illustrates the growing popularity of gold products and services designed to cater to Islamic principles.
Run by a unit of Loomis AB, the Swedish cash- and bullion-handling company, together with local security firm E2S Group, the 20-tonne facility in Nilai represents a push to tap into the nation’s burgeoning Islamic bullion sector.
“There’s a desire among local bullion dealers to have proper storage facilities,” Jeremy Beh, Loomis International’s country head in Singapore, said in an interview, before the site was inaugurated to an audience of traders, refiners and bankers last week.
“Several local banks have recently rolled out so-called halal gold investment products as demand has surged,” he said.
Gold has been one of the strongest-performing major commodities over the past year, supported by booming central bank and investment demand.
Prices last set a record in April, and with the US Federal Reserve now widely expected to reduce interest rates, further gains are widely expected.
Among forecasters, Goldman Sachs Group Inc has flagged a push to US$4,000 an ounce.
Islamic finance was estimated as a US$5.5 trillion global market last year, and that may rise to US$7.5 trillion by 2028, according to Standard Chartered Plc.
Gold should be a good fit given that one of the metal’s main characteristics as an asset is that it doesn’t typically pay interest, in line with Islamic practice.
However, there are other considerations: bullion investments must be tied to specific bars, and during transactions, there needs to be an immediate transfer of ownership.
That conflicts with some practices in parts of the global market, where balances are sometimes not linked to identifiable assets.
“Gold really ticks a lot of boxes for an investor with Islamic principles in mind,” said Louis Hems, commercial director of the Dubai Gold and Commodity Exchange, which has a Shariah-compliant gold contract.
“There’s no interest paid on it. There’s an underlying asset,” he added.
Momentum for the Shariah-compliant gold is growing in Malaysia, as well as other nations.
A halal gold-backed exchange-traded fund listed in Malaysia reached record holdings this year, while trading volume on the Dubai exchange’s Islamic Gold Spot Contract nearly tripled in the first half.
“Demand for gold-investment products is very high,” said Mokhrazinim Mokhtar, senior vice-president of retail deposit and wealth management at Bank Rakyat, which introduced a product in April enabling customers to invest online in physical gold, while adhering to Shariah principles.
“Customers are seen shifting their savings from cash to gold,” she said.
Still, a lack of understanding remains a hurdle, according to Andrew Naylor, head of Middle East and public policy at the World Gold Council, who was involved in developing guidelines for Shariah-compliant gold.
“There’s a lot of assumptions that, unless you can take the gold home, it is not Shariah-compliant,” said Naylor.
“More work needs to be done to raise awareness,” he said.
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