Commodity Online
NEW DELHI: The recently-launched Dubai Gold Securities offers investors Shariah-compliant access to gold bullion investment without the additional costs normally associated with insuring, storing and transacting in physical gold.
And, Shariah-compliant gold funds are offering better returns than the other funds as investment in the yellow metal has lifted its price by multiples of a thousand dollars, according to the managers of Shariah-compliant funds.
After the launch of Dubai Gold Securities at Nasdaq Dubai on March 2, the World Gold Council (WGC) said cross-listings of the product is being planned on regional markets.
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WGC now thinks that it can cross-list the product on other exchanges in the Middle East, particularly in Saudi Arabia. As part of the WGC strategy for exchange traded gold, it has key partners worldwide. WGC can use them to cross-list the product.
Each security is 100% backed by physical allocated gold held in safekeeping by an independent custodian. One share represents an initial interest of one-tenth of a fine troy ounce of allocated gold bullion.
The current wisdom for central banks is that if they have more than 20% of their reserves in gold, they are overweight. Central banks with low reserves of gold are looking forward to increasing their reserves. They are trying to analyse what the right balance should be. They are getting aggressive. And this includes the banks in the Middle East and in the Bric countries, the WGC said.
In contrast, some countries hold 80%-85% of their reserves in gold. This includes Switzerland. The US Central Bank also has a high Gold reserve. These banks also need to readjust their strategy.
Dubai also hosts gold futures trading at the Dubai Gold and Commodities Exchange (DGCX). The state-run DMCC holds a majority stake in the DGCX.
According to a WGC report last month, gold investment in the Middle East jumped 38% in 2008 compared with 2007’s fourth quarter. Saudi Arabia saw a massive 300% jump in investment demand, Egypt 67% and other Gulf countries registered a 2% increase.
According to the WGC, several Middle East nations including Dubai are going to be action centres for gold investments.
A Shariah Supervisory Board has been constituted to supervise the issuance of Dubai Gold Securities and will conduct regular physical inspections of the gold held on behalf of investors.
DGS’s listing on Nasdaq Dubai follows the successful listing of similar bullion securities products on a number of stock exchanges around the world, including the NYSE Arca and London Stock Exchange.
Currency devaluations have particularly shifted the focus to gold. Printing more paper is eroding confidence in it. So, not only gold, but every hard asset is becoming more reliable. Gold especially has attracted a lot of investments.
Gold occupied five per cent of above ground financial asset in 2008. It occupied 22 per cent of it in 1982.
