Key Takeaways
Gold is an effective inflation hedge—it protects the value of your money (that you have used to buy gold) against inflation.
Holding on to physical gold is an effective way of partaking in halal gold investment.
Investing in Shariah-compliant gold ETFs and gold mining stocks is more convenient than buying physical gold.
Gold is the world’s most desired precious metal. In ancient cultures, gold coins and bullion were used as a medium of exchange. Today, investors choose to invest in gold to protect their wealth against inflation, especially during times of financial distress such as recessions. Investing in gold is the best way to keep your money safe. It has an amazing return rate, and with respect to Islamic finance, it’s permissible. This article will guide you toward starting your halal gold investment.
Gold is also a great investment asset if you don’t want to keep your savings in cash—but want to invest in a low-risk and highly liquid asset. Here is how you can start your halal gold investment journey.
How to Start Your Halal Gold Investment
1. Buy Gold bullion or coins.
When we think of investing in gold, an image of large gold bricks lying in a vault pops up in our minds. Large gold bricks can be extremely expensive and are indivisible. An alternative is gold coins or small gold cubes.
For example, if you are planning to buy gold worth $10,000, you can buy 10 gold coins or cubes worth $1000. So, later, if you need $2000, you can sell two of them easily. Buying one big piece of gold would mean that you either sell the entire thing or pay for melting and separating some of it.
Depending on the quantity of gold you are willing to purchase, you can find coins or bullion of several shapes and sizes. Most private dealers charge a premium of an additional 1% to 5% of the entire gold value when you purchase gold.
Gold bullion is durable, and you can put it pretty much anywhere safe from burglars, and it will retain its shape and value. You can turn your gold into cash any time, as many gold dealers in big cities will be willing to buy it from you at a very small discount.
How to keep your Golds Safe
However, there are a few downsides to keeping gold physically with you. Keeping gold at your house is not safe. But, if you choose to deposit it in a safety locker, that will be expensive.
So, a great way to physically hold gold is through certified online gold dealers such as APMEX, Money Metals, and SD Bullion. You can decide to get your gold delivered to your doorstep or keep it deposited at their gold safe for a minimal fee.
Some online gold dealers also allow you to set up savings goals, such as buying 1 gram of gold each month if you sign up for monthly payments through your bank account.
2. Buy Gold Jewelry
Buying gold jewelry is also a great way to participate in halal gold investment and look stylish at the same time. But you’ll have to pay the cost of craftsmanship when you purchase gold and sell it at a lower price because the gold dealer will have to melt it to be used again.
Also, to make gold jewelry, other metals are mixed in gold to harden it. The pure 24-carat gold is soft, so to make jewelry, its purity must be compromised. Besides, the gold jewelry sells at the same price as 24-carat pure gold. So, you’ll pay much more for purchasing gold jewelry as compared to a 24-carat pure gold coin or bullion.
Wearing gold jewelry in public can make you more susceptible to getting mugged. But if you put this jewelry in a locker or a storage box in your attic, again, there is no point in paying for craftsmanship if it will be lying in a box.
Although gold jewelry is still better than keeping cash, gold bullion kept in a safety deposit locker is a more effective investment. Therefore, from an investment point of view, gold jewelry is not the best option to hold gold.
3. Invest in Gold ETFs
Another way to kick-start your halal gold investment journey is by buying Gold ETFs. Gold ETFs have gained popularity in the past decade mainly due to rising gold prices and the effectiveness of keeping gold ETFs as compared to physical gold. Gold ETFs track the price of gold, so the price of a gold ETF largely depends on the price of physical gold.
A gold ETF that an investor purchases represents the units of gold physically held in a vault or paper. These ETFs are traded on stock exchanges just like regular stocks or ETFs. The expense ratio of gold ETFs is minimal, ranging between 0.10% to 0.75%
Before you invest in a gold ETF, it is important to check how the ETF invests money. If the gold ETF invests in futures or other derivative contracts that are haram, the ETF itself will be haram. You can stick to Shariah-compliant gold ETFs to avoid this.
Some top-performing halal gold ETFs in the US during the past year are:
- SPDR Gold MiniShares Trust (GLDM)
- Aberdeen Standard Physical Gold Shares ETF (SGOL)
- iShares Gold Trust (IAU)
- GraniteShares Gold Trust (BAR)
- Van Eck Merk Gold Trust (OUNZ)
5. Invest in Gold Mining Stocks
How to start a halal gold investment? Invest in gold mining stocks or gold mining ETFs. Investing in gold mining securities is also like investing in physical gold because as the price of gold rises, the price of gold mining stocks soars.
But buying stocks of a company gives you ownership in a gold mining firm, while a gold ETF gives you exposure equivalent to holding physical gold. Before you invest directly in a gold mining stock, it is critical to do your research. Analyze how profitable the company is, what is its debt-to-income ratio and whether the activities of the company are Shariah-compliant.
Is Halal Gold Investment Financial Advice?
The answer to this question can be both Yes and No, depending on your situation and your investment goals.
Yes, if you want to be able to access your money any time but also wish to invest it so that it can earn a stable return.
Gold is a highly liquid asset, meaning that it can be turned into cash instantly. It is a great idea to invest in gold if you are planning to start investing but need to set up an emergency fund first. Investment in gold is better than keeping cash in a savings account. You might not even find a savings account that pays a decent return or a halal one.
The money will remain easily accessible because all you would have to do is sell your gold stocks or ETFs or your physical gold reserve. Moreover, selling gold shares online takes a few minutes, and selling physical gold requires you to go to a gold dealer’s shop and walk out with cash.
If you are holding gold through an online gold broker, selling gold online is much faster and cost-effective.
The Reason Behind “NO”
Halal gold investment isn’t a good investment if your goal is to invest a considerable amount for a long period. Many other investments pay much higher returns with low risks, e.g., stocks diversified portfolio, ETFs, mutual funds, and real estate.
If you buy one gram of gold today for $50, 20 years later, you will still have one gram of gold, and its price will only be adjusted for how much the money has devalued over the 20 years. Your money will not grow.
But if you buy stocks or real estate (by making a diversified portfolio) today, after 20 years, you will surely see a much higher increase in your wealth.
Let’s demonstrate why the stock exchange is better than gold with an example.
Suppose you want to invest for the long term as a beginner with less capital. The stocks of ABIOMED were selling for $9.98 in 2010. Suppose you had bought 5 shares of ABIOMED in 2010 for around $50. Your $50 would have grown to $1,321.65 in 12 years when the shares started trading at $264.33 in September 2022. (Estimate excluding dividend income earned in 12 years)
Who Should Invest in Gold?
Anyone can invest in gold. But because gold cannot provide steady returns in the short term and the long term, other investments can offer better returns. Gold is a good equivalent of cash as it protects against loss of value due to inflation. So, if you want to invest 10% or 20% of your wealth in a liquid asset, investing in gold is a great option.
Conclusion
Gold is not a progressive asset. So, anyone who wants to invest for long and wishes for higher returns shouldn’t invest entirely in gold.
Because Gold is better than cash, you can convert your emergency fund or a small portion of your wealth to Gold so that it always remains accessible to you.
Assets like real estate can’t be sold urgently if an emergency pops up. But Gold? Gold will keep your money protected against inflation and readily available for use whenever you need it.
Moreover, since Gold isn’t termed as a gharar asset, it’s a good investment product for halal investors. This write-up contains all you need to start your halal gold investment journey. Read up and implement!