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Showing posts with label sharia finance. Show all posts
Showing posts with label sharia finance. Show all posts

Thursday, May 4, 2017

After Sharia Finance law changes, Dubai going full bore into gold as it works to create world's first gold backed digital currency

When the global body that oversees all things financial under the Islamic code of Sharia law accepted the personal ownership of gold back in December, the nation of Dubai appears to now be going full bore towards becoming ground zero for this potentially lucrative market.  And with their new partnership last month with the Shanghai Gold Exchange to facilitate futures contracts for gold delivery from Asia, they are not simply waiting on the laurels for their next new product.

And what might that product be?  How about a gold backed currency expected to run on the blockchain in the digital sphere.

Image result for gold backed digital currency
(Image use courtesy of News BTC)
Linking a digital currency to gold is an intriguing concept. Various countries want to issue national digital currencies linked to their regular valuta. OneGram, a company in Dubai, is doing things very differently. The Islamic financial services and technology company is looking to establish the world’s first gold-backed digital currency. For some investors, this will create a product combining the best of both worlds. 
Combining digital currency and a gold-backed asset is an intriguing turn of events. Investors often see gold as a safe haven asset during turbulent financial periods. At the same time, the interest in digital currency and cryptocurrency has never been higher. OneGram acknowledges both trends and aims to provide the best of both worlds to traders around the globe. - News BTC
Currently the paper gold markets see more activity than the physical gold markets because most investors would rather trust in other entities storing their gold than them taking delivery and dealing with the demands of physical ownership.  However, as the new Silk Road project seeks to eventually encompass nearly 2/3rds of the world in the coming years, and China is striving towards the implementation of a gold backed trade system to counter the dollar and ensure bi-lateral trade stability, having your money stored in gold but accessible through a digital format will be a great alternative from what was done in ancient times when you had to transport camel loads of gold for use on the original Silk Road.

Wednesday, February 8, 2017

Did the Shanghai Gold Exchange force London to reveal its reserves and try to compete with a new physical market?

In late 2015, China opened up what would soon become the world's largest physical gold market, leaving both London and New York to hide behind their paper trading futures exchanges.  And as more and more action has moved into the Pacific Rim over the past year and a half, one has to ask the question if this is the reason why London suddenly chose to reveal their physical reserves last weekend, and with the intention of opening up their own physical market to compete with Shanghai?

In a move to increase transparency, London's gold bullion market is considering revealing the amount of bullion held in vaults within the city for the first time in its history. According to recent reporting by the Financial Times, this move would include gold bullion held by the Bank of England as well as other institutions. The leaders in the debate over transparency shifts are the London Bullion Market Association. Why might London be considering such a shift at this point in time, and what could it mean for the future of gold, both in England and around the world? 
According to the report, many of the largest banks around the world are pushing for gold to be traded on an exchange, a marked shift from the current bullion market system. The London Bullion Market Association argues that an exchange would work to convince regulators that "banks trading bullion should not have to face more onerous funding requirements." The reason that this shift is necessary, the Association feels, is that London gold is traded directly between sellers and buyers, meaning that essentially no data of those transactions makes it out into the broader analytical world. The Association has estimated that daily gold trades in London may total $26 billion, although that number is difficult to confirm and there are no official data points to cite. 
The Association believes that moving toward an exchange and documenting the transactions of gold bullion in the city will provide greater transparency. How it might affect the market and the gold bullion prices and trade levels in particular is a bit more difficult to say. If London moves to trade bullion through an exchange, will other cities or countries follow suit? Some analysts believe that this could be the beginning of a much larger trend. - Investopedia
In addition, it is rumored that Dubai is in the process of expanding their physical gold markets following January's inclusion of gold investments into Sharia Law Finance.  And with the potential of millions of new customers seeking to purchase physical gold rather than paper futures, it is likely that several markets will look to cash in on the New Gold Rush, and in doing so will have to forego the years of secrecy that they have cultivated in disallowing true audits of their gold reserves.

Tuesday, January 24, 2017

Most in the gold community are not prepared for Islam entering the market, and for those who are it will be big

Many people have heard about the idea of 'Peak Oil', especially since it has been propagated by the mainstream media for over three decades.  But how many have heard about the concept of 'Peak Gold', especially when demand for the metal is about go up several fold?

At the beginning of January a new policy and protocol began in Islamic finance that could shape the future of investing, savings, and even money for the rest of the century.  And this is because 1.6 billion people, or nearly 30% of the world's population, are now able to purchase and own gold and gold products outside of jewelry for the first time in perhaps centuries.

Sharia Law is the ultimate guideline for Islamic living, similar to how the Misvot (the Law) was for the Israelites under the Mosaic Covenant.  And Sharia Finance is the portion of this guideline that dictates money and investment for Muslims around the world.

And with the door now becoming wide open for followers of Sharia Law to enter into the gold markets, most financial industries, particularly in the West, are ill prepared for this.

Image result for sharia gold
Years of underinvestment by gold mining companies have created a looming vacuum in supply as the new Sharia Standard kicks in, says the head of one of the largest producers, Africa-focused Randgold Resources. 
"A complete lack of investment in exploration means we are headed towards a supply cliff," said Mark Bristow, the chief executive of the UK-based mining firm, in reaction to the announcement of a Sharia standard for the precious metal. Randgold is the largest gold producer listed in London with a market value of about US$7.7 billion. 
During the gold "supercycle" that began in 2005 and lasted until about 2011 the price rose more than three times from an average of US$513 per ounce to $1,664. Mining companies responded with a frenzy of investment, mergers and acquisitions. When the price run finally gave out many struggled to adapt and began cutting costs that included axing exploring for new gold. 
"Any new addition to demand will drive up price, as we saw with the Chinese led supercycle back in 2005," Mr Bristow said. If the prediction of UK-based gold trader GoldCore that another 500 to 1,000 tonnes of the precious metal will be needed is accurate, the pressure will be on producers. 
Today it takes at least five years to go from mapping a gold deposit to turning into a mine. Investors willing to risk the billions of dollars it can cost need to be found, and they must be prepared to wait years before seeing a return. Moreover, most new mines are being built or planned in remote locations. 
To feed the continuing need for cash, mining companies frequently issue shares. This dilutes the stock and causes wild fluctuations in share prices. This turns them into a speculatively traded stock rather than a long-term investment, something that Sharia investment forbids. 
Developing countries are where most of the new investment in mining capacity will go should a renewed interest in new mining ventures result from increased gold demand from Sharia investors. - The National.AE
In addition to potential boons in mining stocks, companies like Karatbars and Goldmoney have a leg up on many gold selling institutions through their ability to bypass paper markets and provide products and services directly to consumers and investors.  And this will will be key in marketing to the Islamic world since their processes do not involve the use of interest based gold instruments, or derivatives.

Wednesday, December 21, 2016

Global financial markets already creating new gold products for Islam's Sharia finance edict

It was only a couple weeks ago when the Auditing Organization for Islamic Financial Institutions (AAOIFI) began implementation of new edicts regarding gold ownership under Sharia financial law for the world's 1.6 billion Muslims.  And in this short amount of time several markets around the globe are already creating new gold based products to help bring in Islamic investors.

New standards for the use of precious metals in Islamic finance are encouraging the development of financial products based on gold and silver, from futures contracts to a mobile app. 
Toronto-based Bullion Management Group (BMG), which manages $348 million in assets, launched a silver fund in October and expects its bullion funds will adhere to the new AAOIFI guidance, Nick Barisheff, BMG's founder and chief executive, said. 
On Monday, the Singapore Exchange (SGX) said it had certified as sharia-compliant its gold futures contracts, which were originally launched in 2014 and are aimed at the wholesale market. 
Meanwhile, Malaysia-based HelloGold has launched a sharia-compliant online platform using a mobile app, targeting customers through agreements with technology and financial services firms, chief executive Robin Lee said. 
"We expect to sell about 10,000 ounces of sharia-compliant gold by the end of next year," Lee said. He also said that the firm planned to enter Indonesia, the Philippines and Thailand next year and China by 2019. - Reuters

Tuesday, December 6, 2016

Islamic council overseeing Sharia finance approves new gold standard for Muslim investing

Following a month of open discussion and commentary, the Accounting and Auditing Organisation for Islamic Financial Institutions (AAOIFI) has officially approved a new gold standard under Sharia financial law on Dec. 5.

Coordinating with the World Gold Council for much of 2016, the AAOIFI has formulated the processes and procedures for the 1.6 billion Muslims around the world, and in particular the 110 million Muslims who participate in active investing, to be able to purchase, own, and invest in physical gold and gold based products such as mining shares.

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The sharia gold standard announced yesterday allows the over 110 million investors in the Islamic world to invest in: 
a) vaulted gold 
b) gold savings plans (such as GoldCore's GoldSaver) 
c) gold certificates 
d) physical gold ETFs including "probably" the SPDR Gold Trust, the biggest exchange-traded gold (GLD) 
e) gold mining shares (within certain Shari’ah parameters) 
We know three things that the new Shariah gold-standard will achieve: 
a) Increase diversity in the number of available Shariah gold compliant investment products 
b) Greater emphasis on the role of physical gold in gold transactions 
c) Islamic finance will have greater say in the setting of the gold price 
To some, this may appear to be an unnecessary formality taken by the body whose guidelines are followed by Islamic finance institutions across the world. After all, physical gold is Shariah-compliant and holds a unique status for Muslims. 
AAIOFI states, "From the perspective of Islamic Fiqh and the Islamic economic system, gold has its specific significance. This significance arises from the specific principles provided for gold and silver as Thaman in Shari'ah." 
According to Islamic texts, gold is a ribawi item, which means that it must be sold on weight and measure, and cannot be traded for future value or for speculation. In order for a gold instrument to be Shariah-compliant, the precious metal must be the underlying asset in related transactions. - Goldcore via Zerohedge
Perhaps one of the most interesting caveats in the new procedures for gold ownership and investment is the demand for Islam to have a greater say in the setting of the gold price.  And since we already now have a divergence out of Shanghai from the long-standing price determination set in London and New York each day, the potential of a third completely independent market could soon emerge in places like Dubai, Tehran, Indonesia, and even Saudi Arabia.

Saturday, April 30, 2016

Islamic world and sharia banking will soon have a gold backed currency and financial system

We have talked extensively on how China, Russia, and many of the BRICS nations are preparing for a return to the gold standard in both trade and currencies.  But a new report out from the Middle East shows that the Islamic world is also forging out protocols to institute the use of physical gold in sharia banking.

The significance of this new program is that to accommodate Islam's religious mandate for gold backed money, a new and extremely large buying program will have to take place among several Middle Eastern nations, with demand for gold stretching already short supplies to a breaking point, and where prices will skyrocket from this new source of demand.

“Shariah-compliant gold demand may be `hundreds of tons’  …  Gold products used in Islamic finance would need to be physically-backed and allocated to the underlying asset, according to a draft of a standard for Shariah gold being developed.  “We are almost there” with a final proposal, said Mohd Daud Bakar, a Shariah scholar who is writing the draft for the Accounting and Auditing Organisation for Islamic Financial Institutions, the Bahrain-based industry group that sets Shariah standards in finance.”
Shariah finance is non-interest based finance. It’s religiously unacceptable to extract interest from others if you are a Muslim - that’s usury, also known as riba. So financial instruments have to be tailored to Islamic communities to ensure that they are not in violation of the Koran. 
Shariah compliant gold investing will be configured so no precious metals are borrowed, loaned out or earn income.  Thus the investor - consumer or institutional - will be confident that the actual gold holding consists of physical precious metals. The bars will be numbered and noted. The only profit to be earned will be based on the value of gold moving up. This will involve physical precious metal purchases, but ETFs can be structured similarly and already have been. 
The Bloomberg report quoted above indicates the committee formed to develop the Shariah standard is moving fast. It will “meet once more next Sunday and then submit the proposal to AAOIFI’s Shariah Board.” The physical gold backing is the most important aspect and disqualifies COMEX gold futures. However, the Singapore gold contract will qualify as Shariah compliant, according to the Bloomberg analyst. - Dollar Vigilante

Monday, September 23, 2013

UK: “We want to be the leading Islamic finance sector outside of the Muslim world”

As the Western financial and banking systems fall steadily towards insolvency and a new credit crisis, the United Kingdom is turning towards Islam as a way to infuse new capital and new programs to stave off their own course of bankruptcy.  By accepting Sharia law and the potential restriction of democratic freedoms, the UK appears willing to give up much of its financial sovereignty to be a major player in the world of Islamic finance.



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