Commodities: Gold’s stunning returns, volatility create Shariah dilemma

• Record gold prices drive Shariah commodity valuation toward US$240 billion
• Market swings test Shariah principles against excessive speculation
• Physical backing remains the cornerstone of precious metal investing

The Shariah commodity space is undergoing a massive transformation as choice asset gold makes bountiful returns as a hedge against inflation while testing the patience of Muslim investors trying to avoid excessive speculation.

After a two-year rally from below US$2,000 an ounce to record highs above US$5,600 in January 2026, gold has exhibited extreme swings of late. Recent price volatility sent gold plummeting 11% in a day before surging 6% the next, creating a paradox for faith-based investors drawn to gold's intrinsic Halal value.

The IFN Investor Funds Database values the Shariah commodity funds universe at just below US$240 billion at the end of 2025. The AuM is concentrated in 41 funds, putting the average worth of each at a staggering US$6 billion. This makes the asset class one of the richest for Islamic investors, joining the top-dollar club of equities and fixed income.

The recent "precious metals mania" is, thus, a major development for Muslim investors as both gold and silver push into uncharted territory, creating a complex environment for Shariah compliance. While gold remains a primary hedge, silver has recently acted as a "Cinderella metal," sweeping into the spotlight with a 147% surge in 2025 before a dramatic quarter-value loss in early 2026.

Such nerve-wracking volatility challenges the prohibition of Gharar. Speculative frenzies – often driven by "memefication" and retail fear of missing out – can blur the line between ethical asset ownership and prohibited gambling.

Chart 1: Commodity Shariah funds by region, AuM and fund count

Table 1: Shariah commodity ranked by quarter-on-quarter AuM growth

Americas: Epicenter of concentrated wealth

The Americas currently represent the largest concentration of Shariah commodity assets globally, commanding a massive US$203.33 billion in AuM and a near 34% growth in value between the third and fourth quarters of 2025.

Despite this vast valuation, the region comprising the US and Canada hosts only two active funds, indicating a market dominated by massive physical gold ETFs.

This trend aligns with S&P Global’s observation that North American investors are adopting index-based Shariah strategies to capture precious metal gains while seeking refuge from persistent US inflation.

Europe: Fragmented, diverse landscape

Europe holds the second-largest asset base with US$33.16 billion in AuM, but is notably the most diverse region with 27 individual funds. This diversity reflects a broader European appetite for specialized commodity exposures, including industrial metals and agricultural products.

Fitch Ratings suggests that while gold remains a cornerstone, European Shariah investors are increasingly looking toward "untapped potential" in commodities driven by the continent's energy transition requirements. Europe experienced an almost 26% growth in commodity fund value between the third and fourth quarters of 2025.

Africa: Resilient amid economic shifts

In Africa, Shariah commodity funds manage a total of US$2.94 billion across four tracked funds, with South Africa serving as the primary hub. The World Bank notes that higher-than-expected prices for gold and precious metals have significantly boosted fiscal revenues in Africa (excluding North Africa) during 2025. These funds often act as critical diversification tools for regional investors navigating domestic currency devaluations and the inflationary pressures cited in recent IMF regional outlooks. The African region registered a 7% growth in commodity assets between the third and fourth quarters of 2025.

Asia Pacific: Growing institutional demand

The Asia Pacific region oversees US$256 million in commodity assets spread across six funds. While the asset base is smaller than its Western counterparts, S&P Global highlights a 30% annualized growth rate in Shariah index-based strategies across the region since 2017.

Demand is increasingly driven by institutional investors in Malaysia and Indonesia who are integrating ESG principles with Shariah mandates to satisfy both ethical and faith-based requirements. Led by regional Shariah pioneer Malaysia, Asia Pacific recorded the largest global quarterly growth of 59% for commodity funds between the third and fourth quarters of 2025.

Middle East: Budding frontier for diversification

The Middle East currently holds a modest US$42.28 million in AuM across two tracked funds. Although the region is a global leader in oil production, its dedicated Shariah commodity fund sector remains an emerging frontier as most regional capital is traditionally allocated to sovereign wealth or direct equity.

Fitch Ratings anticipates a "neutral" outlook for MENA sovereigns in 2026, though ongoing economic diversification efforts may soon catalyze more formal fund structures for retail commodity investment. The Middle East experienced a growth of more than 43% on commodity AuM between the third and fourth quarters of 2025.

Chart 2: Commodity Shariah funds by domicile, AuM and fund count

Largest funds

Global Shariah compliant commodity fund performance is increasingly defined by a high concentration of assets in physical gold, also spurred by a remarkable recovery in industrial metals like palladium and platinum.

As the market matures, the top-tier of these funds – measured by both size and growth – shows a clear divide between established North American giants and innovative South African challengers.

The pinnacle of the Shariah commodity world is dominated by physical gold vehicles, with three major funds accounting for nearly 90% of the sector's global assets. These funds provide a transparent and cost-effective bridge for Islamic investors seeking tangible exposure to bullion.

Leading the trio is SPDR Gold Shares ETF, which holds a dominant US$172.75 billion in AuM. As the largest physically-backed gold ETF globally, it is managed by State Street Global Advisors – one of the world's largest asset managers, overseeing roughly US$4.1 trillion across diverse asset classes. Holdings of the SPDR ETF are in physical gold bars stored at HSBC Bank's London vault that ensures avoidance of interest-based returns or prohibited speculative derivatives.

Table 2: Largest Shariah commodity funds by AuM

Top performing funds

While gold dominates in total value, the highest percentage returns are currently being driven by a surge in industrial and precious metals from South African-domiciled funds.

The NewPalladium ETF, managed by NewGold Managers under Absa Bank, tops the pack. This fund achieved a three-month return of 41.27% in the fourth quarter of 2025. It tracks the spot price of palladium, a critical metal for automotive catalysts, and is fully backed by physical holdings with the ICBC Standard Bank custodian. Absa Bank is a major Pan-African financial services group listed on the Johannesburg Stock Exchange.

Table 3: Top performing Shariah commodity funds

Outlook

Looking ahead, the macro backdrop for 2026 appears more finely balanced than the explosive previous year. StoneX Analyst Fawad Razaqzada notes that while the long-term bullish case for gold remains intact, central bank demand may soften at these elevated price levels.

Much of the global easing cycle may already be priced in, and high bond yields coupled with cooling geopolitical tensions could gradually reduce gold’s safe-haven appeal. Consequently, 2026 may see a period of long-overdue consolidation rather than a repeat of the recent parabolic rally.

For Shariah investors, there is the added dilemma of investing in an asset class that promises bountiful returns yet exhibits more speculation – than desired – at times.