The New Shariah Gold Standard in the Works Could Send Gold Soaring Higher - Nathan McDonald

May 9, 2016

As we speak, a new gold standard is being developed, not in the West, as we would hope, but in the East. We don't speak of Russia or China, which are widely speculated as being the two countries most likely to replace the U.S. dollar as the reserve currency of the world. No, we speak of the Islamic world, where even now there are talks going on behind the scenes of issuing a new gold standard.

Islamic investors are demanding a more serious option when it comes to investing in precious metals, predominately gold. They want to be able to protect their wealth and they want to be able to save in a tangible, real currency that isn't a victim to the whims of the U.S. dollar and other Western fiat currencies.

This demand comes from the fact that the current paper gold that is traded on the open markets is not considered a Shariah-compliant investment. Neither are gold-backed dervivates.

This of course is a good thing, as most of these investment vehicles (as we have written about many times in the past), have little to no intrinsic value. Most paper gold products have been rehypothicated into worthlessness and are eventually going to prove to the world just how much of a farce they truly are when even a small fraction of their "owners" attempt to take physical delivery.

This stipulation luckily keeps them away from this inevitable danger and leads them to create a more resound, better system of their own, as the Gulf Times reports:

"London-headquartered World Gold Council (WGC), together with Kuala Lumpur-based Amanie Advisors, an independent advisory firm on Shariah investments and the Accounting and Auditing Organisation for Islamic Financial Institutions in Bahrain, now have been developing a “Shariah Standard on Gold” which aims at “providing guidance from the Shariah perspective on the usage of gold in financial and investment transactions for Islamic financial institutions and participants,” as WGC head Natalie Dempster puts it. The standard also aims to increase transparency and harmonization of the use of gold investments and reduce unclear specifications on what’s haram and what’s halal in trading the metal."

Whether or not this final system will be a catalyst to supplanting the U.S. dollar is incredibly unclear, and ultimately unlikely, but what is clear is the fact that it is another step in the right direction.

There are currently over $2 trillion worth of funds held in Islamic financial institutions. If even a fraction of this is diverted into precious metals, then this newly created system will unleash a frenzied round of buying in an already thinly traded gold market.

This fresh influx of funds could propel gold to new highs never before seen and potentially reshape the gold markets for decades to come.