Smart Investor Malaysia


Gold Investment From An Islamic Point Of View


Gold is one of the most popular precious metal investment and can provide a source of income for investors.

Gold has historically been used as a hedge against currency depreciation and inflation. When there is a rise in inflation, gold usually gains in value.

As a result, in this post, I will discuss gold investing from an Islamic perspective.

Gold Is One Of The Ribawi Item

Initially, it was ruled that buying something with cash or in instalments was permitted in Islam. However, if a transaction involves ribawi items (items included under the ruling of riba), then each party involved will have to give attention so that he or she would not be involved in riba.

أَخْبَرَنَا مُحَمَّدُ بْنُ عَبْدِ اللَّهِ بْنِ بَزِيعٍ، قَالَ حَدَّثَنَا يَزِيدُ، قَالَ حَدَّثَنَا سَلَمَةُ، – وَهُوَ ابْنُ عَلْقَمَةَ – عَنْ مُحَمَّدِ بْنِ سِيرِينَ، عَنْ مُسْلِمِ بْنِ يَسَارٍ، وَعَبْدِ اللَّهِ بْنِ عَتِيكٍ، قَالاَ جَمَعَ الْمَنْزِلُ بَيْنَ عُبَادَةَ بْنِ الصَّامِتِ وَمُعَاوِيَةَ حَدَّثَهُمْ عُبَادَةُ، قَالَ نَهَانَا رَسُولُ اللَّهِ صلى الله عليه وسلم عَنْ بَيْعِ الذَّهَبِ بِالذَّهَبِ وَالْوَرِقِ بِالْوَرِقِ وَالْبُرِّ بِالْبُرِّ وَالشَّعِيرِ بِالشَّعِيرِ وَالتَّمْرِ بِالتَّمْرِ – قَالَ أَحَدُهُمَا وَالْمِلْحِ بِالْمِلْحِ وَلَمْ يَقُلْهُ الآخَرُ – إِلاَّ مِثْلاً بِمِثْلٍ يَدًا بِيَدٍ وَأَمَرَنَا أَنْ نَبِيعَ الذَّهَبَ بِالْوَرِقِ وَالْوَرِقَ بِالذَّهَبِ وَالْبُرَّ بِالشِّعِيرِ وَالشَّعِيرَ بِالْبُرِّ يَدًا بِيَدٍ كَيْفَ شِئْنَا قَالَ أَحَدُهُمَا فَمَنْ زَادَ أَوِ ازْدَادَ فَقَدْ أَرْبَى ‏.‏

It was narrated that Muslim bin Yasar and ‘Abdullah bin ‘Atik said:

“Ubadah bin As-Samit and Muawiyah met at a stopping place on the road. ‘Ubadah told them: ‘The Messenger of Allah forbade selling gold for gold, silver for silver, wheat for wheat, barley for barley, dates for dates”‘- one of them said: ‘salt for salt,”‘ but the other did not say it-“unless it was like for like, hand to hand. And he commanded us to sell gold for silver and silver for gold, and wheat for barley and barley for wheat, and to hand, however we wanted.”‘ And one of them said: “Whoever gives more or ask for more has engaged in Riba.”

According to the preceding hadith, sales and purchases of ribawi products like as gold jewellery must be made immediately and without delay.

If there is a condition of delaying payment or delivery of the item, it falls into the category of riba al-nasiah, which is riba that occurs as a result of the item’s delayed payment or delivery. In fact, it is of greater prohibition when the delay is included with some additional charges.

As an alternative, the buyer may take a financing from a third party before buying the gold in cash. However, using a leverage technique in gold investment is riskier because it will magnify the profit (when gold price appreciates) and loss (when gold price depreciates).

6 Ways To Invest In Gold

There are 6 common ways to invest in gold for an everyday investor:

1. Physical Gold via Bullion or Coin Websites

Bullion refers to high-purity physical gold and silver held in the form of bars, ingots, or coins. Purchasing gold bullion bars is the most conventional method of gold investment.

However, don’t limit yourself to buying actual gold, such as coins or bullion, when considering gold investments.

2. Physical Gold via Jewellery

Gold jewellery is one of the most popular ways for women to invest. This strategy is a popular option for women to invest in gold because it makes them happy by allowing them to use the gold while also making them look attractive when worn around their neck and on their wrist.

However, there are a number of drawbacks to gold investment in the form of jewellery:

  • You’ll probably pay more than the gold price for the piece’s craftsmanship.
  • You’ll most likely be purchasing a piece of 24 carat gold that isn’t totally pure. Because 24 carat gold is delicate and easily scratched, it is rarely used in jewellery. As a result, make sure that you’re not buying 24 carat gold.
  • It is a nightmare to keep the gold safe. Burglars know that Malaysians like to keep gold in their homes, thus they target a lot of Malaysian houses.
  • Because each piece of jewellery is unique, you won’t get a uniform price when you sell it; instead, you’ll have to shop about and bargain, and you won’t likely get as good a price as a pure gold coin or similar item. This is because the buyer will be responsible for the cost of melting down the gold to rebuild it. As a result, they’ll pass that cost on to you.

3. Exchange-Traded Funds (ETFs) That Buys Gold

Besides physical gold, ETFs can be purchased like shares on a stock exchange. ETFs allow investors to gain access to gold without the expenses and hassles of markups, storage charges, and security risks associated with real gold.

The expense ratio of a fund causes an investor to lose a percentage of his or her investment each year. An expense ratio is a recurrent annual fee that funds levy to pay their management and administrative expenditures.

In Malaysia, TradePlus Shariah Gold Tracker by Affin Hwang Asset Management provide investors a Shariah-compliant Avenue to invest in physical gold without the hassle of storing or insuring gold bullion. The Fund closely tracks the returns of gold through an Exchange-traded Fund structure; where units are tradeable on Bursa Malaysia Securities.

4. Buy Gold Through Futures Or Options

Bullion futures or forwards contracts are also available to investors. A futures or forwards contract is an agreement to buy or sell an asset or commodity at a current price and have the contract settle at a future date.

The seller of gold and silver futures contracts agrees to deliver the metal to the buyer on the contract’s expiration date. The buyer will only be an owner of a paper gold contract until the gold is delivered. If the buyer does not wish to own gold bars or coins, the contract can be sold before it expires or rolled over into a new contract.

This form of investment is not permitted in Islam since, as stated in the hadith above, all item ribawi transactions must be made on the same measurement and on the spot. It indicates that the buyer must take possession of the gold immediately rather than waiting for it to be delivered later.

5. Contract For Differences (CFD) On Gold

Gold trading has progressed to the point that traders no longer require physical possession of the commodity. A contract for differences (CFD) is a financial contract that pays the difference between the open and closing trade settlement prices.

The objective behind gold trading with CFDs is to speculate on the price of gold. The profit or loss is calculated by the change in Gold’s price throughout the course of the contract. You can buy in rising and falling markets while trading Gold as a CFD, just like other assets. You can trade when the price of gold is rising or decreasing, in other words.

In a falling market you can actually SELL Gold and then later BUY it at a greater value. Likewise, you can BUY low and SELL when gold rises in value

Contract for differences (CFD) investing is categorically prohibited. This is due to the fact that there is no genuine gold transaction going on, and the economic effect is equivalent to gambling.

6. Exchange-Traded Funds (ETFs That Trade In Gold Futures Or Forwards)

When the underlying contract is gold futures or forwards, it is also Haram to invest in gold futures or forwards through exchange-traded funds (ETFs).

About the Author

Hanif Yahaya is a Licensed Financial Planner. He is the best student of Shariah Registered Financial Planner (Shariah RFP) in 2018 and completed Registered Financial Planner (RFP) in 2020. He is Certified HRDF Trainer and currently he is Youth Committee Member of Malaysian Financial Planning Council (MFPC) and Member of Malaysian Association of Muslim Finance Professionals.

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