The Quran confirms that gold as a currency is desired by all of mankind due to its inherent nature of purchasing power and store of value that enables mankind to gain ownership. Al-Razi in his commentary on Chapter Ali-Imran, verse 14 stated that, “the owner of gold and silver are the owner of everything.” Recently, there has been an increasing demand for gold as it continues to display its positive stable qualities that qualifies it as a risk management tool, particularly during adverse financial markets scenarios. According to the latest Gold Demand Trends annual report from the World Gold Council (WGC), gold demand in Q4 2014 increased by 6% as compared to that in Q4 2013. In addition, with the issuance of the guiding principles of Basel III: Liquidity Coverage and Liquidity Risk Monitoring Tool, there is an attempt to explore gold as a Shariah-compliant high quality liquid asset (HQLA) for the Islamic banking system.
In this regard, a research on the possibility of adapting gold as a permissible high quality liquid asset (HQLA) for the Islamic banking system was conducted by Amanie and KFH in 2014. The research shows that adherence to Shariah requirements for gold transactions such as trading gold on spot basis is a challenge, thus there is a dire need to develop the necessary infrastructure and Shariah governance to monitor the process flow of gold-based transactions. Therefore, it is imperatively essential to delineate clearly the Islamic perspective and philosophical foundation of gold, which shall encapsulate amongst others the distinctively unique criteria of gold and maqasid al-Shariah behind the strict Shariah ruling on dealing with gold. However, it is important to note that this article deals with gold in the form of currency such as gold bullion and gold coin rather than that in the form of commodity such as gold jewelry. The above-mentioned aspects of gold are essential to ensure that the structuring of gold-based Islamic financial instruments and formulation of Shariah standards and parameters for gold-based transactions are conformable to the distinctive criteria of gold and the ultimate purpose for which gold is created.
The fact is that not many contemporary scholars discuss the wisdom behind the trading of gold as the rules related to gold requires in-depth scrutiny based on maqasid al-Shariah, and also due to the reason(s) behind the strict Shariah rulings on dealing with gold: each ruling that the Shariah prescribes to regulate the use of gold as an underlying asset in a financial contract is intended to actualize certain objectives of the Shariah. Thus, in contemporary Islamic finance where gold is identified as a potential underlying asset in different sectors of the Islamic finance industry such as that in Islamic capital markets, the fulfillment of the Shariah ruling on gold may take different forms. This may give rise to various Shariah issues such as co-ownership of gold (musha’), deliverability of gold and acceptable forms of constructive possession of the transacted gold. Thus, this article would deliberate on the objectives (maqasid) of the two main Shariah requirements for dealing with gold, namely immediate possession of counter values (maqasid al-taqabud al-hali), and equal amount of the counter values either in weights, measurements or units (maqasid al-tamathul) in the case that gold is exchanged for gold.
