ETF and Vision 2030 offer Shariah-compliant opportunities in gold

Formed in 2021, the Albilad Gold ETF is the first Shariah-compliant commodity ETF in the region and will have at least 95 percent of its assets invested in gold. This development will attract more investors which will improve liquidity and transparency in the market, the report explained.

The ETF was a result of collaboration between Albilad Capital and Dubai Gold and Commodities Exchange (DGCX).

In addition, the report, citing the Ministry of Industry and Mineral Resources, indicated that the mining sector’s contribution to GDP in the Kingdom is expected to exceed SR240 billion, reduce imports by SR37 billion and offer more than 200,000 direct and indirect job opportunities by 2030. The report remarked that despite this, the gold financial market is still in its infancy.

The report was jointly prepared by Deloitte and the International Shariah Research Academy for Islamic Finance (ISRA) which examined opportunities for the gold market following the Covid-19 pandemic.

"Prevailing sentiment [..] demonstrates confidence in gold as a strategic asset and makes it a viable commodity around which to design Shariah-based products," the report said. It also added that gold has emerged as a stable and a safe haven investment following the adverse effects of the pandemic and the financial crisis that ensued.

This has prompted the two organizations to produce a report which explores the gold market, particularly to examine it through a Shariah-compliant lens. This comes after the Accounting and Auditing Organization for Islamic Financial Institutions (AAOIFI) issued the Shariah Standard on Gold and its Trading Controls in 2016.

60 percent of respondents to the survey, which was carried out as part of the report’s analysis, thought that the introduction of the previously-mentioned Standard would induce more opportunities to develop Shariah-compliant investment options.

The precious metal, historically regarded as a “durable and reliable asset class”, has a characteristic that is lacking in today’s fiat money, according to the new joint report. In times of crises, the fiat money-based monetary system “gets impaired through debt-generated money creation.” Money supply narrows due to reluctance in taking on new debt which leads to a slowdown in money circulation. What follows is a cycle of weaker demand and production.

Gold, on the other hand, provides the much-needed stability that investors seek.

However, gold still has its own challenges. There are social and environmental concerns over its mining and trading processes. Laborers in Africa-based mining companies are at high labor risk. Reserves are also depleting as stakeholders are under-spending, and costs of production and capital expenditures are rising.