Is it Halal to Invest in Gold?
Let’s get right to it! Is it halal to invest in gold? The answer is yes! Of course, it is halal. Back during the time of the prophet (PBUH) most trade was done using gold and silver coins or simply trading one item for another. Therefore, investing in Gold, Silver and other precious metals is halal.
Just because something is halal does not necessarily make it a good investment or even the right investment for you and your family. That requries some research, thought, and in-depth analysis of your situation. If you are going to invest in gold here are some things to keep in mind:
1) Why are you investing in gold?
Is it for diversification? Many people add gold to their portfolios to diversify their investments and their downside risk. Many studies show that there is an inverse relationship between how the equity market performs and how gold performs. Therefore, many people invest in gold to limit some of their downside risk and
use it as a hedge against a volatile market.
2) Are you speculating?
Often I will get calls from clients asking me to move their ENTIRE portfolio into gold. Specifically because they read an article on how Gold prices will soar or equity prices will plummet. Even if the article ends up being right, this is an extremely risky maneuver based on speculative data. It could be catistrophic and ruin long-term financial plans. Avoid speculating especially with large amounts of money.
3) How will you invest in Gold, Silver and other precious metals?
Consider how you intend on investing in Precious metals. You have 3 options. Firstly, you could buy physical bullion. Gold coins, Silver coins, etc. If you choose this option you must considerwhere you will store them and how quickly you can liquidate (sell) the precious metals if you need cash. Another thing to consider is the point of entry. Gold is expensive and you may need to come up with a large amount of cash to purchase physical bullion. Secondly, you could buy individual shares or funds of precious metal mining companies. This would certainly give you exposure to precious metals and the point of entry is generally lower then buying a physical gold block or coin. The drawback is, the company could have excessive debt and other financial dealings that are impermissible in Islam. A third option is to invest in bullion funds, you get the benefit of investing in precious metals without having to worry about what the business is doing, they are easy to liquidate and the point of entry is relatively low. Some of the drawbacks are you do not have the physical gold in your possession and there are management fees associated with these funds.
The reality is, investing in Gold and other precious metals is halal. And it is something worth considering as an addition or compliment to your current portfolio. Like anything else it should be considered along with your goals, your risk tolerance and other factors.
Always do your research and Allah Knows best.