DUBAI: The Dubai Gold and Commodities Exchange (DGCX) will develop and launch the region’s first Shariah-compliant spot gold contract as the precious metal is getting a bigger role on Islamic finance.
DGCX is partnering with Saudi conglomerate Ayedh Dejem Group to make the $7.5 trillion gold market more investable for the world’s 1.6 billion Muslims, who are limited by the type of gold instruments they are allowed to investments in due to Shariah restrictions.
“We are looking at this product to develop local markets and unlock the potential of gold trading in the region. We are delighted to collaborate with the Ayedh Dejem Group as we believe the new spot gold contract will encourage new and existing institutional participants to invest and trade in Shariah-compliant products,” said Gaurang Desai, the chief executive DGCX.
“Bringing Shariah-compliant products to a wider audience will continue to garner interest from the local populous as well as other global entities that are looking for a route into the newest and fastest growing sector of the mainstream financial markets.”
Shariah-compliant gold investments are now estimated to be worth $2 trillion, and the decision to launch the spot gold contract should further attract the interest of regional Islamic financial institutions and banks, DGCX said.
“We believe our partnership with DGCX supports our vision to enhance cross-border collaboration as it offers access to the regional gold and commodities market, providing customers with improved hedging and investment solutions in compliance with Shariah law,” said Ayedh Bin Dejem, the chairman for Ayedh Dejem Group.
Gold has traditionally played a minor role in Islamic finance because of uncertainty on what are religiously permissible investments on the precious metal, which in turn has slowed product development and constrained investor demand.
In December, Bahrain-based Accounting and Auditing Organization for Islamic Financial Institutions, working with the World Gold Council, came out with guidelines to clarify existing Islamic rulings on gold trading and make it easier to conduct complex transactions.
One of the rules called gold transactions to be fully backed by physical metal and settled on the same day to adhere to Islam’s distinction between real economic activity and speculation.