When it comes to the economy as a whole, gold can act as a safe haven. It appeals to people because it is tangible and has long been the go-to investment. Gold is one of the ribawi items, and Islam allows trading it. However, to avoid non-Shariah-compliant gold trading, trading gold must be equal in weight or amount, and the payment must be made on the spot or cash basis.
What Makes Trading Gold Haram?
Any elements of riba (interest), gharar (uncertainty), and maysir (gambling) that happen in gold trading will make the transaction become haram or not Shariah-compliant. Scholars have agreed in the Islamic finance principles on the prohibition of riba, gharar, and maysir.
As Allah said in Qur’an Surah Al-Maidah verse 90-91:
(90)يٰۤاَيُّهَا الَّذِيۡنَ اٰمَنُوۡۤا اِنَّمَا الۡخَمۡرُ وَالۡمَيۡسِرُ وَالۡاَنۡصَابُ وَالۡاَزۡلَامُ رِجۡسٌ مِّنۡ عَمَلِ الشَّيۡطٰنِ فَاجۡتَنِبُوۡهُ لَعَلَّكُمۡ تُفۡلِحُوۡنَ
(91)اِنَّمَا يُرِيۡدُ الشَّيۡطٰنُ اَنۡ يُّوۡقِعَ بَيۡنَكُمُ الۡعَدَاوَةَ وَالۡبَغۡضَآءَ فِى الۡخَمۡرِ وَالۡمَيۡسِرِ وَيَصُدَّكُمۡ عَنۡ ذِكۡرِ اللّٰهِ وَعَنِ الصَّلٰوةِ ۚ فَهَلۡ اَنۡـتُمۡ مُّنۡتَهُوۡنَ
“O you who have believed, indeed, intoxicants, gambling, [sacrificing on] stone alters [to other than Allah], and divining arrows are but defilement from the Satan’s work, so avoid them that you may be successful. Satan only wants to cause animosity and hatred between you through intoxicants and gambling and to avert you from the remembrance of Allah and from prayer. So will you not desist?”
One of the ways to trade and gain exposure to the price of gold is through derivatives. Derivatives are security in which price is based on or generated from one or more underlying assets. The fluctuation in the underlying asset determines its value. The most common derivatives in gold trading are Options and Futures. Traders do not use derivatives for any practical needs, such as taking the delivery of the underlying asset. They solely use it to speculate on the price of an underlying asset without actually owning it. Traders that trade derivatives do not own the physical asset but are betting on something that involves financial risk in a zero-sum game. Therefore, it is difficult to distinguish this activity from gambling and speculation (maysir).
Any transactions that contain any element of riba, gharar, and maysir are considered haram and prohibited in Islam. Muslims need to be careful in making any transactions. Although all transactions in trading and exchanging goods are permissible, Islam has stipulated the rules on its permissibility. To avoid doing such prohibited transactions in Islamic finance, one should understand and be able to distinguish what is halal and haram in the transaction.
To read more about Islamic Finance related topics, please click here and visit our academy.
Besides, feel free to sign up for our free stock screening services at musaffa.com.