Dubai: Gold securities on Monday became the first Sharia-compliant listing to publicly trade on Nasdaq Dubai. The launch marked the culmination of two years of work by the Dubai Multi Commodities Centre (DMCC) and the World Gold Council.
"Gold is an important commodity for the DMCC," said Ahmad Bin Sul-ayem, executive chairman of DMCC. "It behaves like an alternative currency and is a highly sought after asset."
According to Bin Sulayem, the fact that Dubai Gold Securities is fully Sharia-compliant is vital to investors in the Middle East region. A Sharia Supervisory Board has been created which will supervise the issuance of Dubai Gold Securities.
Gold already trades on 12 stock exchanges globally, but the motivation behind the listing on Nasdaq Dubai is to tap into the regional Middle East market, according to Aram Shishmanian, CEO of the World Gold Council.
The Middle East region accounts for about 10 per cent of the global demand for gold, over 340 metric tonnes, and is the third largest market for gold after India and China.
Last year, demand for gold rose 40 per cent in investment terms in the Middle East region, and 140 per cent in the last quarter of 2008. Worldwide investment demand rose 102 per cent.
"In this environment, gold will become an asset class in its own right," said Shishmanian. "It is a hedge against inflation and the US dollar."
Regionally, in tonnage terms, UAE gold demand in 2008 increased by 27 per cent in investment terms, but 38 per cent in the fourth quarter. In Saudi Arabia, investment demand for gold rose 300 per cent in the fourth quarter and in Egypt demand grew by 67 per cent for the same period.
"What you're seeing is that gold demand is being driven by strong investment demand whilst jewellery is remaining relatively static," says Marcus Grubb, managing director, investment research and marketing at the World Gold Council. "Gold is in scarce supply, and in this financial crisis, investors are re-awakening to the special properties of gold as an asset class. Gold has unique properties as a diversifier and that is the key argument."
Securities traded on Nasdaq Dubai will be 100 per cent backed by allocated gold, eliminating credit risks to the investor. There will be no minimum sale requirement for trading gold, with the possibility to buy just one share, if desired. One share will represent one-tenth of an ounce of gold bullion.
"Not a single security can be issued unless it is 100 per cent backed by allocated gold, so no element of the process is open to credit risk," said Simon Village, executive director for investments at Dubai Commodity Asset Management
By Rachna Uppal
© Gulf News 2009
