The Concept of Halal in Gold ETF Investments: Key Principles Explained

In the world of Islamic finance, adhering to Halal principles is paramount. Muslim investors seek ethical and Shariah-compliant investment opportunities that align with their religious beliefs. While many commodities are considered Haram (forbidden) to trade, there are ways to invest in precious metals like gold, silver, and platinum in a Halal manner. In this article, we will explore the significance of Halal investments and discuss Shariah-compliant methods for investing in precious metals.

Why Most Commodities Are Not Halal

Commodities span a wide range of goods, including precious metals, agricultural products like corn, and livestock such as beef. However, the challenge with trading commodities lies in the cost of physical storage. Financial markets typically trade derivatives of commodities rather than the actual physical assets. One common form is the ‘Futures Contract,’ where investors agree on a price and sale date for the commodity. The lack of physical backing creates higher risks in the market, with limited tangible value generated. This derivative trading is often considered Haram in Islamic finance.

Halal Ways To Invest

Unlike many other commodities, gold, silver, and platinum are valuable enough to justify the hassle of physical storage. Consequently, there are Halal ways to invest in these precious metals, allowing Muslim investors to participate in the market while adhering to their religious beliefs.

Owning Physical Gold Bullion

The most traditional method of investing in gold is owning physical gold bullion. This involves buying gold bars or coins from a jeweler and using them as an investment. If the price of gold increases, investors can sell the gold to profit. However, this approach comes with downsides. First, fees are included in the price for the production and display of the gold, often amounting to more than 5% relative to the market price. Selling the gold also incurs fees, leading to losses on both sides of the transaction. Additionally, physically storing the gold presents security risks, and providers who offer gold insurance have minimum storage safeguards, potentially reducing profits.

Gold Marketplaces

Gold marketplaces act as platforms that facilitate the exchange of gold between buyers and sellers without the need for physical movement of the metal. These platforms store the gold in secure vaults and enable traders to buy and sell the stored gold through their website or app. This method offers more convenience and eliminates the need for investors to store the gold themselves. Investors also have the option to take physical delivery of their gold if desired.

Physically-Backed ETFs

The preferred and highly recommended method for obtaining exposure to precious metals in a Halal manner is through physically-backed Exchange Traded Funds (ETFs). These ETFs take the form of stock ticker symbols that investors can buy and sell through their investment brokers. Unlike derivatives, physically-backed ETFs are backed by actual gold stored in vaults, making them a more secure and Shariah-compliant option for Muslim investors.

Recommended Physically-Backed ETFs

Several ETFs offer exposure to precious metals with low expense ratios, making them ideal for Halal investment portfolios. Examples of physically-backed ETFs include Aberdeen Standard Platinum Shares ETF (PPLT), GraniteShares Platinum Trust (PLTM), iShares Silver Trust (SLV), SPDR Gold Trust (GLD), Aberdeen Standard Physical Silver Shares ETF (SIVR), iShares Gold Trust (IAU), GraniteShares Gold Trust (BAR), Aberdeen Standard Physical Gold Shares ETF (SGOL), and SPDR Gold MiniShares Trust (GLDM). The lower the expense ratio, the more cost-effective the investment, with GLDM being one of the most affordable options at just 0.10% per year in fees.

Also Read:  How to Buy Gold ETF Online

Conclusion

Investing in gold and other precious metals in a Halal manner is possible through physically-backed ETFs. These ETFs offer ease of trading, low expense ratios, and the security of owning the actual metal. As the preferred and most cost-effective method, physically-backed ETFs align with Islamic finance principles and provide Muslim investors with an ethical and Shariah-compliant way to participate in the precious metals market. By choosing these Halal investment options, investors can grow their wealth while staying true to their religious beliefs.

FAQs

Q : Is investing in Gold ETFs Halal?

A : Yes, investing in Gold ETFs that are physically-backed and Shariah-compliant is considered Halal in Islamic finance.

Q : What are the benefits of investing in Gold ETFs?

A : Gold ETFs offer diversification, liquidity, and cost-efficiency, making them an attractive option for investors seeking exposure to gold.

Q : How do physically-backed ETFs work?

A : Physically-backed ETFs hold actual gold in secure vaults, providing investors with tangible ownership of the precious metal.

Tim Schmidt

About 

Tim Schmidt is an Entrepreneur who has covered retirement investing since 2012. He started IRA Investing to share his expertise in using his Self-Directed IRA for alternative investments. His views on retirement investing have been highlighted in USA Today, Business Insider, Tech Times, and more. He invested with Goldco.