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Understanding the Shariah Gold Standard

December 2016

December 27, 2016 | 13:50 | Dubai

Earlier this month the World Gold Council (WGC) and the Accounting and Auditing Organisation for Islamic Financial Institutions (AAOIFI) declared the launch of the Shariah Standard on Gold, offering guidance on the use of modern Shariah compliant financial products backed by gold. The rationale is that the Standard opens up a new investment asset class, which has been shrouded in debate till now, enabling Islamic financial institutions to offer their customer base a new range of products and facilitate the creation of a broader range of savings, hedging and portfolio diversification products.


Why this standard?

The complex treatment of gold in Islamic tradition has limited its development as an investable asset class. Gold is one of the 6 ribawi items alongside silver, wheat, dates, barley and salt. Ribawi items are staple, everyday commodities so stringent transaction rules apply to prevent injustice or inequality between transacting parties. For example, ribawi items must be transferred immediately. In a modern financial context, this means that gold products must be spot traded. There is also a longstanding debate about whether gold is a currency or a commodity, making the design of consistent Shari’ah rules for modern gold products more difficult.


A lack of Uniformity

The complexity of Islamic attitudes toward gold products has led to a scattered and fragmented set of rulings. This lack of uniformity is a major impediment to the development of gold financial products in Islamic finance. Creating harmonised and authoritative Shari’ah guidance for gold is imperative therefore, if the asset class is to become more widely accepted by Islamic investors. Recognising this need, the World Gold Council has partnered with the Accounting and Auditing Organisation for Islamic Financial Institutions (AAOIFI) to develop the Shari’ah Standard on Gold4 (“the Standard”).

The Shariah Standard on Gold has been developed to enable more Shari’ah compliant investments and to govern a very important asset class which by its nature is highly liquid and constitutes an alternative investment vehicle within the Islamic finance industry. This Standard will allow Islamic finance institutions to satisfy consumer and investor demand through the development of new Shariah-compliant gold products. It will also enable IFIs to develop alternative Shariah-compliant liquidity management tools.

Gold has historically played an important role in Islamic finance and the new guidance issued by AAOIFI clarifies the ways in which gold can be used and transacted in a Shariah-compliant way.

The Standard covers the use of gold in various contractual settings including partnerships, sales, donations, and contracts of security (surety). These applications of the Standard can be used to develop Shari’ah-compliant products such as

  • vaulted gold,
  • regular gold savings plans,
  • gold certificates and
  • physical gold ETFs, amongst others.


Source: World Gold Council, AAOIFI

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