DMCC and World Gold Council to launch Shariah compliant gold securities.
Investment in gold should soon be easier for regional investors, following the announcement that the World Gold Council (WGC) and Dubai Multi Commodities Centre (DMCC) are to launch Shariah compliant Dubai Gold Shares.
We will know exactly who owns which bar.
Dubai Gold Shares will trade on the Dubai International Financial Exchange (DIFX), subject to regulatory approval. Each security represents one-tenth of an ounce of gold, which will be 100% backed by allocated gold bars held by DMCC and its sub-custodian HSBC.
Ahmed Bin Sulayem, executive chairman of DMCC, said: “Dubai Gold Shares will provide investors with secure, low-cost access to owning gold bullion without the additional costs normally associated with insuring, storing and transacting in physical gold.”
DMCC will operate and manage this initiative through Dubai Commodities Asset Management (DCAM), a UAE-based investment company 100% owned by DMCC and launched in March.
DCAM has previously announced plans to issue investment products based on commodities, some of which will be Shariah compliant.
Gold Shares are already listed on nine other exchanges, including the NYSE Arca, London Stock Exchange, Deutsche Borse and Singapore’s SGX. James Burton, CEO of the World Gold Council, said that there were also plans to list Gold Shares in Hong Kong, Tokyo and Switzerland. “We would look at other countries in the Middle East and other exchanges,” he added.
Dubai Gold Shares are the first to be Shariah compliant, having been reviewed by Shariah Capital. Shaykh Yusuf Talal DeLorenzo, chief Shariah officer at Shariah Capital, said:
“The important thing for the exchange of gold is there needs to be a clear line of ownership established, so gold purchased by an Islamic investor will be held exclusively and in a precise amount. We will know exactly who owns which bar.”
This will prohibit practices used in non-Shariah compliant gold securities, where gold may be held on a non-exclusive basis or lent out overnight. It will also prevent the use of futures and options based on gold.
“What we’re offering here is a buy-and-hold product,” said DeLorenzo.
Dubai Gold Shares will be open to both retail and institutional investors. Approved market makers will be allowed to create and redeem shares, provided they back them by depositing physical gold with DMCC and HSBC.
This all helps to create a transparent investment product. “The NAV (net asset value) will be posted daily on www.dubaigoldshares.com, thus further underlining the transparency factor,” said Ian MacDonald, executive director – gold and precious metals, DMCC.
The WGC first launched Gold Shares in Australia in 2002, and as of March 31 this year had 806 tonnes of investment gold held at exchanges – worth around US$24.2 billion.
“The product is available for trading at all hours and is extremely liquid because it trades at $1 billion per day,” said the WGC’s Burton. He said he aimed for Dubai to trade shares backed by 120 tonnes of gold within a few years of the launch.
With gold imports to Dubai hitting 559 tonnes last year, even as prices soared, and with Islamic banks faced with a limited number of instruments in which to invest, Dubai Gold Shares could see strong demand.
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