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In November of last year, the Accounting and Auditing Organization for Islamic Financial Institutions (AAOIFI) and the World Gold Council (WGC) announced that approximately 1.6 billion Muslims were to have greater access to the gold market; as a result, the Shariah Gold Standard was passed. It’s reported that over 110 million investors in the Islamic world have investments in vaulted gold, gold savings plans, gold certificates and physical gold. We discussed this back in December in our 100 Million New Gold Investors for 2017 blog.

Several months on, we take a look at the impact that the Sharia Standard has had for Turkey.

The Golden Days

It has been reported that the central banks in Turkey may believe that gold was potentially neglected, for too long. Gold is known for having zero credit risk, making it arguably one of the safest assets that a nation can hold. The fact that Turkey now have better access to this precious metal, has reportedly been viewed positively.

In Turkey, the domestic economy is home to approximately 5,000 to 6,000 tonnes of gold which is estimated to be valued at around $200 billion. Most of the Turkish wealth for gold is said to be hidden within people’s homes.

Back in 2011, the Central Bank of the Republican of Turkey introduced the Reserve Option Mechanism (ROM) which allowed banks to use gold as part of their required reserves. The ROM was a success and boosted Turkish reserves by 450 tonnes.

At the opening of this year, a new mechanism was introduced under domestic banks, which enables them to not only post gold as required reserves, but to purchase recycled gold from Borsa Istanbul for a fixed price.  The reasoning behind introducing such a measure, could be to ensure that Turkey is making use of their gold.

It is now believed by some of the Turkish central bankers, that Turkey is one of the wealthier emerging market countries. With much of that wealth still hidden, a mission is ongoing to bring that wealth to the surface. The ability to have greater access to gold via the newly passed Sharia Standard could potentially assist with this mission. 

Feeling Empowered

The new Shariah Standard’s impact has been felt, particularly by sector players who have been known to shy away from conventional financial practices. The introduction of the Shariah Standard has provided definitive guidance for gold products, which is both a new and useful concept for Turkey.

In the short-term, it is believed that a more diversified market could be fostered, (of course, the long-term for the Shariah Standard is still unknown). Investors could be provided with a wider range of investment options. Additionally, a reduction in handling and vaulting costs could also be experienced.

However, speculation is always welcomed in the bullion industry. Predictions for the long-term Shariah Standard include: bolstering demand for gold products, a reduction in the volatility of gold’s pricing, as well as pushing Turkey to become a gold hub.

Question Time

It appears that the Shariah Standard is going well so far. The opportunity for gold in Islamic finance appears obvious, and there seems to be a lot of positivity and hope surrounding the Shariah Standard. It has been claimed, that the new Standard could enable the foundation of what perhaps could prove to be the most significant event for Shariah finance in the modern day.

Do you agree? Could the new Standard continue to prosper or is there potential for it to face any hurdles either in the distant or near future?

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This blog represents one person’s opinion only. Customers should conduct their own research and take advice before making an investment. We do not offer investment advice.

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To my knowledge, there was nothing in Sharia before that prevented Muslims for owning gold. Parents bought gold jewellery for their daughters marriage much of which passed down the generations. So don't know what this Sharia compliant stuff is really all about. I think it is another attempt for the global elite to get people out of physical and into paper based products. For millennia people in that part of the world have trusted physical metal and not there governments. Not sure if they'll be fooled into buying into the new scam from WGC.

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