An unprecedented move by the Muslim Council has set the stage for a game-changing rush on gold in the East.
December 6th is a special day in the Christian calendar throughout Europe. It is Saint Nicholas day – or The Feast Of Saint Nicholas.
December 6th, this year, is notable, though, for something else – something which will rock the Christian world of investment to its core.
This is the day The Muslim Council has earmarked to launch a scheme across Islam to allow Muslims, throughout the world, to buy gold on their own account – and, for the first time, to be able to profit from it.
This is unprecedented.
Before now, Muslims could buy various forms of investment – but were not allowed to gain from them. This was because of a section of Sharia law – the basic guidebook for Islamic codes of behavior – known as “Riba” – decreed it was an un-Islamic quality to profit from another. Payment or receipt of interest is considered usury and unjust.
There have been many disagreements within the Muslim community about whether riba is a sin against Islam or just a guideline advising against the practice of earning interest.
Gold – along with barley, dates, salt, silver and wheat – is one of six commodities known as “Ribawi items.” Under Sharia law, these six can only be traded by weight or by measure. The trade must be immediate – so there is no provision for future value trading or speculation which may lead to profit.
Muslims can own gold – but only as jewelry, for other personal use – or as currency.
Within Islam, there is no universal agreement about commodities – especially Ribawi items – being traded for gain. There is also confusion and dissent about companies which have gold as assets or are backed by gold – a gold exchange-traded fund is one such example.
Arguments raged for years about the validity and scope of this “law.” The Quran – or Islamic “Bible” – has the full force of Sharia law behind its edicts. Scholars and clerics endlessly discuss, interpret and distil its meanings – and then pronounce on their deliberations by revising the “rules” when this is deemed to be appropriate.
A Giant Awakes …
The Islamic world now seems to have woken from its slumber and has decided to join the global investment sphere.
The Sharia Standard on gold will give clear guidance to billions at last and introducing it has massive implications for the markets.
Islamic finance is a relatively small part of the global financial market – ironic given the wealth of Saudi Arabia, Kuwait, and other Middle Eastern countries. Standard and Poors estimate the market to be worth US$2 trillion at present – but are projecting US$5 trillion by 2020.
More than double in three years …
The new Sharia Gold Standard is to be announced on the 6th of December at the World Islamic Banking Conference.
As a result, new Sharia-compliant products will be introduced across the Muslim world – and as word spreads of the ability to make a profit from a commodity which has gained 367% in US dollar terms since 2000 – inevitably, there will be a surge in demand for gold.
The World Gold Council expect this demand to be “hundreds of tonnes.”
They may have underestimated. If the financial institutions of Islam merely re-invest 2% of their holdings into the new Sharia-compliant products – which allow them to earn interest and profit – more than 1,000 tonnes of extra gold will be needed to meet demand!
This is the heart of the “problem” – total gold supply in Q3 was just under 1,000 tonnes. A surplus of only 172 tonnes.
There is a common misconception that physical gold is abundant and can be readily obtained.
Most of the easily found sources of gold were exploited years ago. Reaching new veins and mining to the standards required by environmental rules and regulations is expensive – and precludes working mines which may have been viable in the past.
All the gold ever mined would fit onto half of a football pitch – in the dimensions of a cube shape – according to one estimate. Given the earth’s population, and the timescale involved, gold is not as prevalent as most people think.
Follow The Yellow Brick Road …
The outlook is fascinating when seen in a wider perspective.
Recent estimates put the global number of Muslims at around 1.6 billion people.
Gold prices have, historically, been set by COMEX (Commodity Exchange), LBMA (The London Bullion Market Association), and the London Gold Fixing banks. With the rise in prosperity of India and China the dynamics of the gold market – the demand, supply and the price changes are beginning to move away from the grip of these institutions.
China has recently seen the Yuan accepted into the reserve banking system and has set up the Shanghai Gold Benchmark to add weight to its influence on the gold price.
Couple these factors into a market newly opened to a quarter of the world’s population and you have a possible game changer on your hands.
Unlike the populations of Western countries, most Muslims always regarded gold as a store of value and a means of saving for rainy days. Few would need persuading to buy products which made them money while they saved.
Many Muslim countries suffered from currency issues and inflexibility of exchange due to war, Governmental interference, or market unpopularity. Sharia compliant gold products will be seen as an easy and obvious choice to take in such circumstances.
Are you thinking strategically about worldwide pressure on the availability of gold?
Think of the combined wealth of Saudi Arabia, United Arab Emirates, Qatar, Kuwait, Oman, Indonesia, Malaysia, Turkey and even Pakistan, all suddenly vying for a share of the spoils which, up until now, have been denied them.
What would you do?
Collin Plume is President of Noble Gold – and firmly believes knowledge and sound advice are the fundamental keys to any successful investment. Noble Gold specialize in gold IRAs and old 401K rollover strategies.
One of the easiest ways to get started protecting your future is with a precious metals IRA. At Noble Gold, expert advisers will walk you through the entire process step by step. Visit their website to get your free Gold Investors Guide and learn more about the benefits of investing with precious metals.
Article courtesy: Noble Gold