How to Buy Gold and Silver Islamically (Part 3 of 3)
The specter of inflation — possibly even hyperinflation — looms large when governments start printing money in the trillions of dollars. Euphemistically labelled “quantitative easing,” “buying securities,” or “supporting the economy,” increasing the money supply is not needed when an economy is based on real assets, as a truly Islamic economy would be.
Today, not even cash is backed by a real asset as it once was. Which is why not everyone is convinced by the bread and circus bromides of interest-based economists. Real assets include precious metals, and in turbulent times have historically provided an investment safe haven.
Ethica has been receiving many questions in recent months about how to buy gold and silver Islamically. Given the many missteps possible with precious metal investments, Ethica’s Shariah Board has issued the following expert legal opinions:
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What is meant by market value? Local rates for gold bars are going to vary. One usually must "shop around" for the best rate. All of them will certainly be higher than the price of gold one finds online.
Only in a deferred sale, where the price of the gold or silver is deferred, is it mandatory that it be done at the market value. But in a spot sale, where none of the price is deferred, there is no such requirement. Therefore, in a spot sale, one can purchase the gold or silver at any price agreed between the buyer and seller.
When discussing gold and silver one often hears about buying “at spot.” Does this refer to the market spot price used by wholesale traders? For example, I am buying a gold coin at a specific price online. I agree and pay. It is then delivered to me two days later. Will that be considered the permissible “buying at spot price and deferring delivery”?
Yes, that would be permissible. Additionally, the market spot price does not mean the price used by wholesale traders. Rather it refers to the price at which the gold or silver is sold to a walk-in customer at spot.
Does market value mean spot price, or does it mean spot plus markup? Because nobody ever sells gold and silver at spot prices. There is always a markup above spot price, depending on the seller.
Market value means the price on which gold is sold to a walk-in customer at spot. In a deferred sale, where the price of the gold or silver is deferred, it is mandatory for the contract to be done at the market value of the gold or silver. But in a spot sale of precious metals, there is no such requirement.
Must funds leave a retirement account "immediately" for a transaction to be valid if the delivery is deferred? It seems that a wire transfer would not be permissible, since it usually settles in a few hours or days. Banks usually have a hold for wire transfers and may even need to call the account holder to prevent fraud. Would this delay invalidate the transaction, given that spot prices of metals fluctuate considerably even in a few hours?
There are two scenarios while purchasing gold or silver online through a retirement account. First, where the buyer and seller consider the sale concluded once the offer and acceptance is exchanged by the buyer and seller at the time of the transaction. This is invalid, as neither the price nor the delivery of the precious metal is executed at the time of the transaction. In a second scenario the transaction is not considered concluded at the time of the online transaction. Rather, if it is considered concluded when the payment is finally transferred from the retirement account to the seller’s account, then this transaction would be considered valid.
How do I correct improperly executed gold and silver transactions?
The transaction should be dissolved at the purchase price and executed again, whether with the same seller at a new price or a new seller.
Is it a condition for a valid gold or silver purchase that one personally see the precious metal being purchased?
No. Please see the conditions outlined in Part 2 (here).
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