PERSPEKTIF: Precious Metal Investment Account

The idea that the paper money would be worthless sometimes in future for many of reasons, especially so when its value is solely based on something intangible like inflation rate/ interest rate or alike, makes some people turn to precious metals like gold and silver for investment. More so when there has been campaign using religious basis and aided by the current crisis in the modern financial system in 2007 to invigorate such a perspective. Without doubt gold and silver because of their rarity and desirability will retain their intrinsic value regardless of the economic situation. Because of this, their investment is safe and in Islamic law context a kind of vindication to the principle mentioned especially in the Sunnah that gold and silver is a benchmark for value (معيار للثمن).

Motivated by religious zeal and business opportunity as a result of the growing demand and market competition among companies led mainly by Muslims, gold investment product is now on offer. Some even propagate the replacement of paper currency with gold coin or dinar and thus making some them selling the physical gold dinar (for profit apparently) to the public. Attempt to replace country existing currency with gold dinar without proper authorization or legal basis by some quarters was presumably made out of ignorance, since under the law it is only the government can do so. Even from the Islamic perspective it is the rights of the government under the authority of siyasah to decide on the use of currency in the country and anyone found guilty undermining this authority can be penalized. Nonetheless it is permissible for the gold dinar to be sold as a kind of investment. For the more established Islamic financial institutions such as banks and investment companies, the gold and silver investment is yet another business product. At first there is an apprehension on the permissibility of gold and silver investment especially so both are considered what is termed as ribawi goods which means goods that are subject to the rules of riba.

Riba is an anathema to Islamic law. The prohibition is crystal clear in the texts of the Quran and Sunnah with the threat of declaration of war against its transgressors. And the rules of Hadis on its dealing are quite specific among others if the exchange of the same class/genus and species/kind should be equal in quantity and immediate. If it is only same in class but different in kind the exchange should only be immediate. Following this rule means the transaction of the metals between the bank or financial institution and the customer must be in real time and real gold or silver. Selling gold in form of gold dinar is probably not an issue at all in respect of complying the above rule. But this is not when the intention of the customer not to hold the physical gold but to invest its value by requesting the bank to safe keep it and because of this has all the rights to withdrawal the gold at any time. The bank will be paid a fee for its service and considered as an agent throughout the whole process. In this scenario complying to the above rule would therefore present difficulty and inconvenience both the bank and customer since the gold must be physically present during the transaction as required under the conditions of taqabud and hulul. This will give raise to handling and storage issues of the gold as well as security.

Still, convenience and efficiency dictate how business should be done, including in precious metals investment products of Islamic banks. To overcome the rule on the physical delivery of the gold or silver purchased on the opening of the account, the concept of qabd hukmi (or incorporeal taking possessionship) is adopted. This seems to be tolerated by Shariah Advisers of the Islamic bank for the reason that the important underlying essentials of a qabd or taqabud is to show transfer of ownership has indeed completed and the parties have full control of the property. And this can be achieved not merely by physical qabd but also constructively. Since investment in gold and silver is mainly meant for diversification, financial stability and long term commitment, the principle of qabd hukmi overcome both handling and legal issues of taqabud and hulul on the gold transaction according to Islamic Shariah. Through this principle the client bank acted as an agent on the behalf of the customer purchase the metals by maintaining an unallocated account with the agent bank. Metals is purchased by the agent bank who will take the physical delivery and safekeeping of the metals on the behalf of the client bank and its customer. No actual gold/silver bought is held by the customer but instead an allocated the amount as evidenced in the customer account. The idea of unallocated account is to allow the client bank to make deposit for the purpose of purchasing the gold by the agent bank. It is probably permissible since the actual purchase will take place upon the customer request to open the account. This unallocated account is therefore just for convenience. It is also a necessary steps to avoid the client bank from being exposed to volatile movement or correction of the metal market price. Customer will monitor the price of the gold/silver and has the rights to continue maintaining or withdraw the account with the choice to receive either cash or gold. Physical delivery of the metal is limited to certain amount a kilogram for gold and 50 kgs for silver at customer cost. Delivery will be made by the agent bank who services the unallocated account.