Stock Market Rally: What does it mean for your portfolio?
21 July 2023 6 min read
11 min read
Published:
Updated:
Ibrahim Khan
Co-founder
Gold has increased 76% over the last 5 years giving approximately 15% returns every year. Those are impressive numbers and this article digs into whether gold still remains a good investment, the best ways to invest in gold, and whether gold is a halal investment for Muslims.
There are a plethora of ways you can now invest in gold either offline or online. However only a few of these options are permissible for Muslims. And only a few of those are a commercially viable way of investing that will result in lucrative outcomes long-term.
This article is all about uncovering what those rare options are.
To do that we examine:
There are 7 main ways to invest in gold for an everyday investor:
Let’s take each of these in turn.
The first and most ancient way of investing is by holding actual chunks of gold. The standardised two forms of this are either gold bullion or gold coins (or shares in these).
A gold bullion is a rectangular chunk of gold worth around $750,000 these days, so probably not an investment most people can make or should make unless you are confident of being able to safely store that gold bullion effectively.
Gold coin is a much smaller and more affordable size of gold in the shape of – you’ve guessed it – a coin.
You can also buy percentage shares in both of these types of gold shapes via a gold dealer or online. You can also buy gold by weight too.
There are a whole range of gold brokers online but two that we’ve particularly interacted with and found to be decent are Bullion Vault and Minted. They each do slightly different things.
Bullion Vault allows you to either buy gold coins, or to actually trade gold with other sellers live on the internet. This cuts out the middleman and the fees associated with that.
Minted allow you to buy one-off amounts of gold, or to set a direct debit so you slowly save up in gold. They also have plans to bring out a card to accompany their app, so eventually they could come up with a gold-backed online bank – which sounds intriguing.
You can compare them both side by side along with other options on our investment comparison here.
Investing in gold jewellery is a popular way of investing in gold and the positives are you get to actually use the gold, look nice, and you know the gold is safe if you literally have it around your neck for example.
The downsides are considerable though – especially if you look at it from a pure investment lens:
All in all, if you are buying gold jewellery for jewellery – that’s great. If for investment only, then there are probably better ways to invest in gold.
Here is a list of gold ETFs available in the USA. The two highlighted ETFs in the below list are not sharia-compliant as they do not actually hold gold. Rather they create the same effect via holding gold futures and options.
Everything else is fine. You can invest in most of these ETFs via M1 Finance here. I have included their ticker code in the brackets.
All of the below ETFs are a way to invest directly into physical gold in the UK. You can invest in these via Hargreaves Lansdowne here.
To compare directly between the fee structures for each of these ETFs/ETCs see here.
As mentioned above, under Islamic law most scholars opine that futures or options trading is not permissible (though a small minority disagree). See our Fatwa Forum or a detailed comparison and analysis. When it comes to gold and precious commodities in particular, scholar are particularly careful about any deferment in delivery or payment.
As such, any ETFs or ETCs (Exchange Trade Commodities) are best avoided where they link their return to gold via futures or options holding.
Investing in CFDs and spread betting is unambiguously haram. This is because there is no real gold trading taking place and the economic effect is exactly symmetrical to that of gambling.
There’s a reason why spread betting has “betting” in the name.
The other way to invest into gold is to invest in gold mining stocks. This is relatively effective as gold mining stocks naturally rise in price when gold prices rise (as what they are mining is now worth more).
However, if you choose to invest in gold stocks, understand that you are buying a company with all its complications and subtleties. You are buying a business and no two businesses are alike. Just like buying Shell or BP isn’t the equivalent to buying oil directly, buying gold miners isn’t equivalent to buying gold directly.
For each of the below stocks you should check that it is sharia-compliant from a debt perspective. To find out how, see here. To actually buy these stocks you’ll need to register with a broker like Hargreaves Lansdowne.
Here’s a list of some companies in the FTSE 100 that mine gold:
Here’s a list of companies from the FTSE 250 that mine gold:
Finally, you have some smaller companies that also mine gold. Typically, smaller companies are higher risk and higher reward.
As mentioned above, there are 7 main ways of investing in gold. Here is the sharia take on each of those methods:
Method of buying gold | Sharia analysis |
Physical gold via bullion or coin websites | Halal (but do make sure you’re actually buying a physical asset and there is clarity over ownership records and when ownership transfer to you. Ideally you should also be able to take delivery.) |
Physical gold via jewellery | Halal |
ETFs that hold physical gold | Halal |
ETFs that hold gold futures and options | Haram |
Gold stocks and shares | Halal (but do check for debt levels) |
Futures or options | Generally seen as haram (but minority do view them as permissible) |
CFDs, spread betting and other derivatives | Haram |
Now we know where you can invest in gold, and which are the halal ways of investing in gold, let’s consider if its actually a good idea.
Let’s run through the pros and cons.
To come to a conclusion on whether now is the best time to invest in gold, I would consider the following factors:
On (1), while I am no expert in gold prices, I am fairly confident that we will see macro instabilities, government printing more money, and uncertainty in the markets to continue for a year or two at least. Based on that, I would expect gold prices to at least hold their value.
On (2), I think there are a whole range of alternative investments to consider (see here) but in order for there to be a truly effective comparison to gold, the investment class should be safe and easy to exit from. The only real alternative is a savings account. And relative to a savings account you’re probably more likely to see growth in gold prices compared to savings returns (which are very low currently).
The other option is property – but I would only consider this a viable alternative if you are happy to hold whatever you invest in for around 5 years. This is because property is relatively illiquid so harder to get out of than savings accounts or gold.
Finally, on (3), if I did buy gold I would buy it via an online broker such as Bullion Vault and Minted. Alternatively, I would buy via a gold ETF using Hargreaves Lansdowne or M1 Finance. I would not buy physical gold and take actual delivery, or buy gold jewellery thinking it is a great investment.
Having done a fair bit of research and thinking around gold, my preferred approach is to hold a steady 5% or so of my portfolio in gold and just maintain that regardless of price. So if gold prices rise and my gold holding becomes 10% of my portfolio, I would sell it to get back to 5%. And if gold prices fall and my holding is worth 3%, I would buy more gold to get to 5% of my overall portfolio again.
The reason I take this approach is, I think of gold as essentially an equivalent to cash, but one where there is a potential for a little growth.
But I don’t like putting too much in gold as I don’t consider it a productive asset – and I like to invest in productive assets as they are going to make me much more money long-term.
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