Commodities: Gold a magnet for Shariah investors

* Islamic-friendly commodity products boom as alternative to Halal stocks, bonds

* Gold a frontrunner with record prices and diversity in offering

* Futures market speculation requires strict Fatwa oversight though

Overview

The multi-trillion dollar global commodities market, with precious metals and agricultural components that are particularly appealing to Islamic investors, is at a crossroads from output and weather challenges that ratchet up pressure on prices even as a US-triggered trade war weighs on demand. Hitting record highs above US$3,370 an ounce on the 17^th April 2025

and rallying more than 25% since the start of 2025, gold is acting as a safe haven against the US-China tariff crisis, resumption of fighting in Ukraine and Gaza and inflation concerns worsened by the Federal Reserve’s disclination to slash interest rates quickly.

Central banks globally bought a net total of 1,045 tonnes of gold in 2024, the World Gold Council reports. It marked the third consecutive year that central bank demand exceeded 1,000 tonnes, significantly surpassing the annual average of 473 tonnes between 2010 and 2020. Notably for central banks in Islamic jurisdictions, Turkiye bought 75 tonnes of gold in 2024, Iraq 20 tonnes and Uzbekistan 11 tonnes.

The appetite for gold has continued into 2025, with Goldman Sachs forecasting more demand that could take prices to a record high of US$4,000 an ounce by mid-2026.

Gold is a frontrunner for Islamic investors looking at an entire commodities complex for compatibility with Shariah rules as they seek alternatives to Halal stocks and bonds. This is evident by fact that the lion share of Islamic commodity investment funds is gold-based as per IFN Investor data.

Like gold, precious metals such as silver, platinum and palladium represent physical assets of intrinsic value without interest-bearing elements that violate the Islamic rule against Riba. Agricultural products like soybeans, corn, wheat, sugar, cocoa and coffee and industrial metals such copper and aluminum have similar qualities and are often used in Tawarruq or commodity Murabahah transactions.

This intrinsic value characteristic nonetheless does not automatically make these commodities Shariah compliant. Putting money into commodities can be a concern for Islamic investors due to the intense speculation revolving around the futures markets, where the traded value of oil can be detached sometimes from the physical underlying asset, especially during market swings.

Also, companies in the energy sector often rely heavily on heavy debt that leaves them saddled with high leverage. Speculation and heavy debt create the Gharar condition of injustice, dispute and exploitation forbidden in Islamic finance.

In such instances, the Islamic workaround would be to seek commodity exchange-traded funds (ETFs), or exchange-traded products, of business units that have significantly lower exposure to the interest-bearing debt of the parent company.

Investment opportunity

There are multiple ways for Islamic investors to access commodities with direct ownership of the assets being one, although taking delivery of raw materials like soybeans and copper and storing them until resale often isn’t feasible for most individuals.

Commodity ETFs that provide investors exposure to raw materials stored by funds are, thus, among the most widely used by the Shariah-focused constituency.

In gold, SPDR Gold Shares (GLD) is the largest ETF, with 24.57 million ounces of vaulted gold in its custody at the end of March 2025, translating to assets under management (AuM) worth around US$31.7 billion.

Some Islamic banks offer gold accounts where customers can buy and sell digitally gold held by the financial institution on their behalf and an increasing number of start-ups are also offering Halal gold trading options.Fund performance

Turkiye, having launched the world’s first Islamic ETF in 2006, is also home to the most number of Shariah compliant commodity funds tracked the IFN Investor Funds Database. There are 21 such funds in Turkiye, with total AuM of US$13.82 billion.

Jersey, the largest of the Channel Islands between England and France and a tax haven, has the second largest collective AuM for Shariah compliant commodity fund at US$5.59 billion, though there is only one such fund tracked by the IFN Investor Funds Database. Ireland ranks third in this order, with AuM of US$1.23 billion, for one solitary fund too.

Retirement strategies account for the largest commodity fund play in the Islamic space, with 11 of them commanding US$11.25 billion in AuM from a total of 20 strategies with US$20.77 billion in AuM. Growth and income strategies were the second and third biggest themes, respectively.

ETF as an outright play came in at fourth, proving that Shariah fund operators in commodities focused on specific needs of investors even while using ETFs as basic vehicles for structuring.

The top performing Islamic commodity fund is Turkiye’s Bereket Retirement And Life Gold Participation Retirement Investment Fund, which posted a one-year return of 82.97%. The operator of the fund, Bereket Retirement, says it invests “in mutual funds based on gold and similar valuable metals with physical value”, among other investments.

Outside of Turkiye, the Royal Mint Responsibly Sourced Physical Gold ETC had the biggest performance among Islamic commodity funds, with a one-year return of 39.76%. The income-type fund, partially backed by 100% recycled gold bars, is run by HANetf.

The WisdomTree Physical Gold fund is the Shariah world’s largest commodity fund tracked by the IFN Investor Funds Database, with an AuM of US$5.59 billion. The growth fund is designed to offer investors a cost-efficient way to access physical gold by providing a return equivalent to the movements in the commodity’s spot price less fees, according to manager WisdomTree Metal Securities.

Chart 1: Top Islamic commodity fund hubs by AuM and fund count