World rushes for Shariah-compliant gold funds!

March 16, 2009

Commodity Online
DUBAI: Mad gold rush has resulted in a boom for the Muslim world. The recession-induced safe haven status for gold has provided a big opportunity for the Shariah-compliant gold funds, which are now doing roaring business.

Reasons are many for this love for  Shariah-compliant gold funds. First thing to notice is that at a time when the world has lost faith in everything, what will be the best bet for an investor who is dogged by the perennial fear of losing his money in equity markets. It is a proved fact that the world will naturally turn to gold as a safe haven during the time of recession.

That is exactly what happened when the meltdown hit the world in 2008. But, when investors look for gold, which will be the best option. There comes the Shariah-compliant funds. Because, they are the most reliable ones.

They offer better returns than the other funds as investment in the yellow metal has lifted its prices.

Gold is one commodity everyone has confidence in. And if it’s a Shariah-compliant fund investing into gold the confidence levels of investors are all the more higher.
 
For example, Shariah Capital Inc with the Dubai government formed the Dubai Shariah Asset Management that launched four Shariah-compliant funds in Dubai early this year  — DSAM Kauthar Gold Fund (DKGF), DSAM Kauthar Energy Fund, DSAM Global Resources and Mining Fund Limited and DSAM Kauthar Natural Resources Fund Limited.

In Shariah-compliant funds, the transactions and investments need to be based on assets and that makes the investors feel confident. These funds are performing better than the other funds.

The DSAM Kauthar Gold Fund now records a year-to-date return of 5.63 per cent. Gold investments have contributed to the cumulative performance of the four funds.

Currency devaluations have particularly shifted the focus to gold. Printing more paper will erode confidence in it. That is what happened across the globe now. So, not only gold, but every hard asset is becoming more reliable. Gold especially has attracted a lot of investments.

Besides gold emerging as a safe haven for investors, jewellery demand has been a key contributor for driving up the prices. Gold is in a long-term bull market and the demand for jewellery is driving it.

Gold occupied five per cent of above ground financial asset in 2008. It occupied 22 per cent of it in 1982. In the depression of 1930s, the value of share of a company increased from $4 to $45 in a few years. Gold, therefore, has a long way to go.

Again, one word of caution. Even in these circumstances, the demand for gasoline in the US has increased 1.6 per cent year on year. One can invest in energy companies that have less than 15 per cent debt in balance sheets.

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