SS 57 · Trade

SS 57: Gold and its Trading Parameters in Shari'ah

What this standard is about

Gold is one of the most traded assets in the world, and Islamic investors want clear rules for dealing in it. This standard, developed with the World Gold Council and issued in November 2016, covers gold in its various forms, the parameters for trading it, and the rules for gold-based financial products offered by institutions.

Gold has a special status in Islamic law. It is a ribawi commodity, one of six items named in the prophetic tradition (gold, silver, dates, wheat, barley, and salt) that are subject to strict exchange rules. Those rules also apply to modern currencies.

Why it exists

Before this standard, there were no dedicated Shariah rules for gold investment. Conventional gold markets routinely ignore Islamic requirements such as taking possession at the time of sale. This standard gives Islamic banks, funds, and individual investors a clear framework, and it opened the door to Shariah-compliant gold products such as physically backed exchange-traded funds.

The key rules, simply put

Gold is fungible and measured by weight. It is subject to the rules of currency exchange (sarf).
Gold exchanged for gold must be of equal weight, and the exchange must happen on the spot with no delay.
Gold exchanged for currency must also be on the spot: the buyer must take possession during the contracting session.
It is not permissible to sell unallocated gold, meaning an unspecified ingot with no identified bars behind it, without physical possession.
Joint ownership of gold is allowed, provided each partner owns a defined percentage share of the pool.
Physical gold bars and coins qualify for investment. Physically backed gold funds can qualify. Futures contracts with no physical gold behind them do not.
The standard's rulings on gold also apply to silver. Precious metals other than gold and silver, and currencies, are outside this standard's scope.
Zakah, the obligatory annual charity, applies to gold holdings.

An everyday example

An investor buys ten 100-gram gold bars from a dealer, pays in cash, and takes the bars home the same day. This follows the standard. Buying a paper certificate that promises "100 grams of gold" with no specific bars identified and delivery months away does not.

Words to know

Ribawi — one of six commodities (gold, silver, dates, wheat, barley, salt) with special exchange rules in Islamic law.
Sarf — currency exchange, which must be completed on the spot.
Unallocated gold — a claim on gold with no specific bars set aside for the buyer.
Zakah — the obligatory annual charity on wealth, including gold.
ETF — exchange-traded fund; a fund traded on a stock exchange, in this case backed by physical gold.

Source

AAOIFI Shariah Standard No. 57 — https://islamicmarkets.com/standards/aaoifi-shariah-standards/gold-and-its-trading-parameters-in-shariah/scope-shariah-ruling-55
Islamic Finance News summary — https://www.islamicfinancenews.com/aaoifi-shariah-standard-on-gold.html