Muslim investors may bring down gold prices
Monday, 14 December 2009
MUMBAI, Dec 13 (Commodity Online): If a report appeared in India's leading business daily Economic Times is any indication, Muslims will help bring down the soaring gold prices as they are now selling their old gold to book profits. Muslims are rushing to the bullion markets now because gold is their favourite investment as it is a Shariah-compliant business which they can involve in. If they dispose of the gold they have to book profits, the prices are set to come down. So, when India's Reserve bank of India bought the IMF gold the prices soared to new highs but when Muslims opt to sell the old gold they have the bullion market may see a fall in prices.
According to the ET report, scrap and old jewellery sales are set to go up by 10-15 per cent this year as Muslims will be the main sellers.
The precious metal's lure for most of Muslims lies in it being compliant with Islamic law, or Shariah, as an investment since there is no element of interest involved either in its purchase or sale on the spot market.
The ET said initial findings of a survey that's under way by Taqwaa Advisory & Shariah Investment Solutions (TASIS) - an organisation providing Shariah advisory and investment solutions within the Indian legal framework - show that community members with monthly savings of Rs 5,000 and above prefer gold as an investment option in Bangalore.
That's because there are not many Islamic banks or Islamic investment options here. There are options for investments into, say, listed companies that are debt-free and not in non-compliant businesses such as liquor, tobacco or into lending and borrowing. But there's a problem here too. For instance, if a debt-free company that is Shariah-compliant invests its surplus into interest-bearing assets, that becomes taboo too.
TASIS has so far found out that in Bangalore many community members were active in the gold trade due to investment into the metal being Shariah-compliant.
The results from six other cities such as Mumbai, Delhi and Hyderabad are awaited and investment behaviour in these parts is expected to come to light over the next fortnight or so. The trend is apparent in Mumbai too. According to Jitendra Kantilal, partner of Jugraj Kantilal - Zaveri Bazaar's largest scrap and old jewellery dealer with annual purchase of 1,000 kilos - much of the exchange of old for new jewellery and outright sale comes from the Bohra Muslim community.
A recent report by Citigroup India cited World Gold Council data that showed the country's cumulative demand in the nine months of 2009 was 264 tonnes against 553 tonnes in the same period last year because of soaring prices. This, the report said, could be due to consumers meeting demand by exchanging old items (according to WGC, exchange activity accounts for 60 per cent of retail turnover in recent quarters), melting down and re-making old pieces and shifting to costume/gold-plated jewellery.
According to ETIG data, spot gold price of 99.5 per cent purity has risen by over 27 per cent to Rs 17,305 per 10 gm in Mumbai so far this year. The rise has tracked the international price which has gone up because of an increase in speculative activity following cheap availability of funds, combined with dollar weakness.
According to the ET report, scrap and old jewellery sales are set to go up by 10-15 per cent this year as Muslims will be the main sellers.
The precious metal's lure for most of Muslims lies in it being compliant with Islamic law, or Shariah, as an investment since there is no element of interest involved either in its purchase or sale on the spot market.
The ET said initial findings of a survey that's under way by Taqwaa Advisory & Shariah Investment Solutions (TASIS) - an organisation providing Shariah advisory and investment solutions within the Indian legal framework - show that community members with monthly savings of Rs 5,000 and above prefer gold as an investment option in Bangalore.
That's because there are not many Islamic banks or Islamic investment options here. There are options for investments into, say, listed companies that are debt-free and not in non-compliant businesses such as liquor, tobacco or into lending and borrowing. But there's a problem here too. For instance, if a debt-free company that is Shariah-compliant invests its surplus into interest-bearing assets, that becomes taboo too.
TASIS has so far found out that in Bangalore many community members were active in the gold trade due to investment into the metal being Shariah-compliant.
The results from six other cities such as Mumbai, Delhi and Hyderabad are awaited and investment behaviour in these parts is expected to come to light over the next fortnight or so. The trend is apparent in Mumbai too. According to Jitendra Kantilal, partner of Jugraj Kantilal - Zaveri Bazaar's largest scrap and old jewellery dealer with annual purchase of 1,000 kilos - much of the exchange of old for new jewellery and outright sale comes from the Bohra Muslim community.
A recent report by Citigroup India cited World Gold Council data that showed the country's cumulative demand in the nine months of 2009 was 264 tonnes against 553 tonnes in the same period last year because of soaring prices. This, the report said, could be due to consumers meeting demand by exchanging old items (according to WGC, exchange activity accounts for 60 per cent of retail turnover in recent quarters), melting down and re-making old pieces and shifting to costume/gold-plated jewellery.
According to ETIG data, spot gold price of 99.5 per cent purity has risen by over 27 per cent to Rs 17,305 per 10 gm in Mumbai so far this year. The rise has tracked the international price which has gone up because of an increase in speculative activity following cheap availability of funds, combined with dollar weakness.