Investing in Precious Metals & Minerals: Some Key Considerations

Answered by Shaykh Taha Abdul-Basser

Question: I have a question about investing in the stock market. I was looking at a stock that is offered through the investing tools with the bank I use. From what I can tell the fund primarily invests the majority of capital in gold markets with the rest in smaller precious metals. I know that I cannot invest in things that are haraam (tobacco, gambling, alcohol, etc) but do I have to worry about investing in something like metals for any reason?

Answer: Wa-`alaykum as-salam,

Yes, there are other things that a person should consider when thinking about investing in a fund like the one mentioned in your question (USAA Precious Metals and Minerals (USAGX)).

As mentioned, according to publicly available materials, this is a mutual fund whose “principal investment strategy is to normally invest at least 80% of its assets in equity securities of domestic and foreign companies principally engaged in the exploration, mining, or processing of gold and other precious metals and minerals, such as platinum, silver, and diamonds.” i.e. the fund invests in companies that themselves are engaged in the precious metal and mineral sectors as miner, processors, etc.

So the permissibility of investing in the fund depends on 1) the permissibility of investing in each of the companies in the portfolio (and this includes certain financial ratios, nature of its income, etc) and 2) the activities of the fund itself (e.g. how it manages the uninvested funds, dividends from the shares, etc).

Because these matters are difficult or impossible for non-expert end users (investors) to ascertain themselves and impermissible  financial practices prevail in the sector, it is impermissible or very makruh for the questioner to invest in the fund. One should only invest in funds that are certified as shari`ah compliant (i.e. halal) by a review board consisting of 3 or more qualified shari`ah experts.

Wa s-salam