Halal Ways To Invest In Gold & Other Precious Metals
In this post, we run through several methods for investing in gold, silver, platinum and other precious metals — while avoiding the risks of exposing ourselves to non-halal instruments.
When discussing the different asset classes, I mentioned that there are ways to trade commodities (including gold, silver and platinum) in a halal manner.
However, these are the execptions to the rule — the vast majority of commodities are in fact haram to trade (for purely speculative purposes).
Let's start by explaining why that is, and then discuss the halal methods for investing in precious metals.
Why most commodities are not halal
There are different types of commodities, spanning everything from corn 🌽, to beef 🐄, to precious metals. Pretty much any basic good used that is fungible, and can be exchanged with other goods of the same type.
The challenge with trading commodities is that they are too expensive to physically store. To get around this, financial markets often trade derivatives of these commodities, and not the actual commodities themselves.
The primary form this takes is that of a 'Futures Contract' where an investor agrees with another party on a price and a sale date, and either profits or loses based on the future price of the commodity at contract expiry. The investor has no interest in owning the underlying commodity (and indeed, is unable to, as a retail investor). The result is higher risk created in the market — with little corresponding value actually being generated. You can read more about derivates here, and here.
Halal Ways To Invest In Precious Metals
As we've just seen, the primary issue with trading commodities in general is the fact that they're not physically backend — and that the investor has no wa
1. Owning physical gold
This is pretty obvious. You can purchase gold from a jeweller and use that as an investment. If the price of gold increases, you can sell it for a profit. The downside to this approach is that it involves you physically storing the gold, and the fact that it can be difficult to sell the gold later (without losing a significant amount of it's value in fees).
There are platforms that exist to match buyers and sellers of gold and other precious metals, facilitating an exchange without physically moving the gold.
The way this typically works is that it involves the company storing gold in a secure vault, and allowing buyers and sellers to trade that stored gold through their website or app.
This makes it much easier to get exposure to gold, and you don't necessarily need to physically store it yourself. They also give you the option to take custody of your gold through physical delivery.
I've used a service called BullionVault in the past that does this well, and with lower fees than you'd pay if you were to purchase physical gold from a jeweller.
3. Physically-backed ETFs (Recommended)
The third, and preferred, method for getting exposure to precious metals is through physically backed Exchange Traded Funds (I've written more on ETFs here). This is similar to marketplaces, but takes the form of a stock ticker symbol that you can buy and sell through your investment broker.
Here are some examples of physically-backed ETFs1:
|Gold||GLD||SPDR Gold Trust||0.40%|
|Gold||IAU||iShares Gold Trust||0.25%|
|Gold||BAR||GraniteShares Gold Trust||0.17%|
|Gold||SGOL||Aberdeen Standard Physical Gold Shares ETF||0.17%|
|Silver||SLV||iShares Silver Trust||0.50%|
|Silver||SIVR||Aberdeen Standard Physical Silver Shares ETF||0.30%|
|Platinum||PPLT||Aberdeen Standard Platinum Shares ETF||0.60%|
|Platinum||PLTM||GraniteShares Platinum Trust||0.50%|
The expense ratio is a % that is charged every year from investors in the fund[^fn-expense_ratio]. This is used to cover the storage costs, and administrate costs related to operation of the fund.
Physically backed ETFs are the easiest and cheapest way to get exposure to gold in a halal manner (It's not often that the easiest method is also the cheapest, but that's the case here).
I personally buy the SGOL (Aberdeen Standard Physical Gold Shares ETF), as it has the lowest expense ratio, with over $2.5b of assets under management, so it's very liquid.