Gold as an investment

For many years mankind has coveted gold. Gold coins, bullion or jewelry is often associated with wealth and grandeur. In modern times, gold maintains its allure as a decent investment option, especially in times of volatility due to its stability. While gold may not give you the same return as shares when markets are rising, it has a reputation for maintaining and increasing in value through volatile periods. Gold is known to outperform shares and other asset classes during periods of downturn in the market. Over the last five years the price of gold has increased by almost 60% and is currently $1,931.34 per ounce.

Even though gold doesn’t generate any dividends and may be costly to store, many investors hold a small portion of their portfolio in gold. There are different ways to give an investment portfolio some exposure to gold. These include:

Buying gold bars or coins

An investor can invest in physical gold bars or coins. Some well-known coins to invest in are coins such as the Gold American Eagle, Gold Canadian Maple Leaf and the South African Krugerrand. The South African Mint lists Krugerrand mintages of one ounce, half ounce, quarter ounce and tenth ounce. While Krugerrands contain gold, it is usually sold at a price slightly higher than the value gold content within the Krugerrand for reasons such as the manufacturing cost.

Gold ETFs

Gold ETFs track the price of gold. This is done via different methods such as holding gold or gold futures and options.

Gold Shares

A decent way to gain exposure to gold is to invest in gold shares directly. The change in the gold price will affect the profitability of the company and, in turn, its share price. Additionally, many listed gold companies pay out dividends. There are, however, other risks to be considered that may affect the profitability of the company such as industrial action, supply chain disruptions or an increase in the cost of inputs. The JSE and other stock exchanges, have numerous well known gold companies to choose from.

Shari’ah considerations when investing in Gold.

While owning gold itself may be halal, not all modern methods and transactions are halal. Some shari’ah consideration when investing in gold are the following:

Physicality

Ensure that you are actually investing in physical gold and not an instrument that merely tracks the price of gold. ETFs or online gold sales may not actually give you ownership of gold itself. You are required to have actual gold transferred to your ownership.

Extraneous activities

If you choose to go the route of owning shares to gain exposure to gold you will need to ensure that the company as a whole is shari’ah compliant. This means that the general business of the company shouldn’t be haraam, nor should it have excessive debt.

Zakah

Gold is a zakatable asset. Therefore, if you meet the minimum requirement for the payment of zakah you will need to discharge zakah on your gold as well.

Avoidance of Riba

Gold is considered a riba determining asset. This means that there are additional rules of trade for gold. One of the most prominent narrations on gold exchange sums up the rules of trading in gold and is found in the compilation of Imam Muslim. It states that:

“Gold is to be paid for by gold, silver for silver, wheat for wheat, barley for barley, dates for dates, and salt for salt, like for like and equal for equal, payment being made hand to hand. If these classes differ, then sell as you wish if payment is made hand to hand.”

Allah knows best