Is It Permissible to Buy Shares of Gold ETFs?

Answered by Shaykh Taha Abdul-Basser

Question: Asalamualaikum,

I’d like to know if it’s halal to buy shares of a gold etf (Exchange traded fund) from an online brokerage house.

This company issues stock certificates backed by 1/10 of an ounce of gold which they hold in a vault. The certificates are a bit more expensive than the market price of the gold due to the cost of management.

Answer: As-salamu `alaykum wa-rahmatullah wa-barakatuhu

al-hamdu li-llah wa s-salatu wa s-salamu `ala sayyidna muhammad

It is not permissible to buy shares of gold ETFs. The impermissibility of buying gold ETFs has two primary rationale:

1) the likelihood that the fund manager will manage client funds in an impermissible manner (e.g. place funds in interest-bearing money market accounts, purchase US treasuries with the funds, buy derivatives [options, currency forwards, swaps, etc] with them, etc.) and

2) the probability that the manager’s trade in gold will not comply with the Shari’ah principles and rules that govern money-gold transfer (sarf). Among these rules is that any money-gold exchange be *strictly spot*, i.e. that, with the buyer’s payment, specific pieces (e.g. bars) of gold must come into the buyer’s physical or constructive possession immediately. Investigation of the standard operating procedure (SOP) in the gold markets reveals that this does not happen.

Wa s-salam.
The slave of Allah

Taha Abdul-Basser

Shaykh Taha bin Hasan Abdul-Basser is a scholar of Islamic ethics and law who has acted as a shari`a compliance reviewer, examiner and consultant to investment funds, investment banks, retail banks, financial advisories, legal advisors and other for-profit and not-for-profit entities since 1998. He is currently the Harvard Islamic Society Chaplain and a member of the Harvard Chaplains.

In addition to his father (with whom he began the study of standard Arabic as a child), he has studied the traditional Islamic disciplines with teachers from the Sudan, the Yemen, Tanzania and Bahrain. He has received traditional licenses (ijazat) in Islamic ethics and law, Prophetic traditions (hadith) and other disciplines from several teachers, including Shaykh Nizam Ya`quby.