Published Wednesday, June 29, 2011 in Emirates 24|7. click here to read
With gold prices hovering around the $1500-per-ounce-mark, experts believe that a surge in prices in the next six months is likely, with prices reckoned to increase by about 15 per cent to reach $1700/oz by the end of the year.
Despite the fact that the price of the yellow metal has gone up by just 5.5 per cent since the beginning of this year, M.R. Raghu, Senior Vice-President-Research at Kuwait Financial Centre (Markaz), believes that “gold will have another good year in 2011.”
“In my assessment, it is likely to end at $1700 per ounce levels, implying a 20 per cent increase for 2011. It did about 30 per cent for 2010,” he told Emirates 24|7.
With a lacklustre economic recovery in the US and concerns over uncertainty in the European debt markets giving support, gold prices are likely to break previous records, say analysts. The precious metal has immensely gained in popularity as a safe haven investment, and is expected to continue its upward trajectory.
Experts at Standard Bank too are believers in the gold story, and see prices moving up. “We believe gold will continue to push higher in 2011. Our core view on gold is driven not only by our observations in the physical market but also by continued growth in global liquidity, driven not so much by the Fed anymore, but increasingly by government borrowing,” said Walter de Wet, a commodity analyst at the bank.
Experts maintain that the performance of the yellow metal is less volatile as compared to other commodities, giving it more scope to appreciate.
“Unlike silver or oil, gold has a risk-controlled performance so far with low volatility as it has a wider audience (retail, institutional, hedge funds and government treasury). As articulated before, gold will continue its march so long as US economic recovery is hazy, Europe is in doldrums and the inflation monster in Asia is uncontained,” explains Ragu.
In its first quarter report of 2011, The World Gold Council said that gold demand grew 11 per cent compared with the first quarter of 2010, as the average gold price for the quarter rose 25 per cent year-on-year. It’s an as-expected quarter, said the council.
June 29, 2011
June 23, 2011
‘No easy answers’ Islamic finance market faces ‘expectations’ challenge
This Article was published on Arab Times. click here to read
With the increased profile of Islamic banking globally, the GCC Islamic banking community is well positioned to build on a leadership role versus other potential competing centers such as Malaysia, Iran or even the UK. GCC countries collectively now account for more Shariah-compliant financial assets globally than any other region or country. GCC Islamic banks have also demonstrated their ability to be more innovative in terms of product development and provision of services as they compete for business with conventional banks. However competition in the GCC has also resulted in a fragmented Islamic finance industry with most local institutions remaining relatively minor players on a global scale. With their relatively lower asset bases they have also seen stiff com-petition in their own backyard from some of the largest international banks looking to tap the market.
When labels like “Islamic,” “responsible,” and “sustainable” are associated with finance, they trigger expectations of ethical differences from the mainstream. Meeting expectations of customers is a tough task for any business, but when it comes to Islamic finance and socially responsible investing (SRI), the gap between expectations and practice presents a significant challenge.
Theme
Anecdotal evidence suggests that, rightly or wrongly, some of the expectations triggered by “Islamic” finance are no lending money on interest, no financing of “sin” industries (e.g., gambling), profit and loss sharing, asset and enterprise, micro-finance, small and medium sized enterprise (SME) finance, poverty alleviation, and environmental sustainability. Perhaps the underlying theme is profit sharing, doing good and avoiding harm to society and the environment.
In practice, other than refusing to finance “sin” industries, these expectations are hard to meet. Despite the expectation of profit sharing, most of the financing in the Islamic financial sector is debt based, where the form of financing is changed to that of a sale or a lease without necessarily changing its economic substance. For example, payment schedule and terms and conditions in home financing in the Islamic financial sector may look very similar to, if not the same as, those in a conventional mortgage.
Customers are usually told that the difference between Islamic finance and conventional finance lies in fulfilling certain technical conditions of classic Islamic commercial jurisprudence, which give financing the contractual form of a trade or a lease. Some customers scale down their expectations and take what is available; others turn away in disappointment.
This gap between expectations and practice produces sarcastic media coverage-for example “Don’t Call It Interest” (Richard C. Morais, Forbes, 2007) and “How Sharia-Compliant Is Islamic Banking?” (John Foster, BBC News, 2009). Such academic research papers as “Incoherence of Contract-Based Islamic Financial Jurisprudence in the Age of Financial Engineering” (Mahmoud A. El-Gamal, 2007) also raise similar issues. Unfortunately, form versus substance is a persistent debate in Islamic finance, with no closure in sight.
Regarding doing good and avoiding harm to society and environment, some argue that the job of financial institutions is to maximise profit for their shareholders and that profitable business leads to prosperous society. If shareholders want to do something charitable, they can do so in their private lives.
A counterargument is that to use the “Islamic” label, financial institutions need to go beyond changing the form of financing and earn their profits while actively doing some-thing positive. For example, Islamic banking should focus on SMEs rather than high-net-worth individuals; Islamic financing for cars should finance fuel-efficient vehicles, such as hybrids, instead of fancy gas guzzlers; and Islamic project financing should push for fair treatment of construction workers and efficiencies in energy, waste, water, and car- bon emissions.
Portfolio
In 2004, in a research paper titled “Socially Responsible Investing,” Paul Hawken found that “the cumu lative investment portfolio of the combined SRI mutual funds is virtually no different than the combined portfolio of conventional mutual funds.” In other words, the expected ethical difference was blurred.
In its 2007 “Guide to Climate Change Investment,” Holden & Partners provided a similar finding: “SRI and ethical funds perform just as well (if not slightly better) than their mainstream counterparts because in most cases they are in fact mainstream.”
Perhaps the titles of these two biting articles published in 2010 summarize their content: “100 Best porate Citizens? What a CROck!” (Marc Gunther) and “When Pigs Fly: Halliburton Makes the Dow Jones Sustainability Index” (R.P. Siegel). Paul Hawken also noted in 2004 that “Muslim investors may be puzzled to find Halliburton on the Dow Jones Islamic Index fund.”
How to deal with this gap between expectations and practice? Do financial institutions mislead customers with labels like “Islamic,” “responsible,” and “sustainable”? Or do customers have unrealistic expectations? Is it possible to bring the practice and expectations closer?
There is no easy answer to these questions. Having said that, one thing that could help in narrowing the gap between expectations and practice is honest communication of what exactly is the ethical proposition so that when someone takes “a small step” toward ethical ideals, it is not criticised for not being “a giant leap” but appreciated for what it is.
With the increased profile of Islamic banking globally, the GCC Islamic banking community is well positioned to build on a leadership role versus other potential competing centers such as Malaysia, Iran or even the UK. GCC countries collectively now account for more Shariah-compliant financial assets globally than any other region or country. GCC Islamic banks have also demonstrated their ability to be more innovative in terms of product development and provision of services as they compete for business with conventional banks. However competition in the GCC has also resulted in a fragmented Islamic finance industry with most local institutions remaining relatively minor players on a global scale. With their relatively lower asset bases they have also seen stiff com-petition in their own backyard from some of the largest international banks looking to tap the market.
When labels like “Islamic,” “responsible,” and “sustainable” are associated with finance, they trigger expectations of ethical differences from the mainstream. Meeting expectations of customers is a tough task for any business, but when it comes to Islamic finance and socially responsible investing (SRI), the gap between expectations and practice presents a significant challenge.
Theme
Anecdotal evidence suggests that, rightly or wrongly, some of the expectations triggered by “Islamic” finance are no lending money on interest, no financing of “sin” industries (e.g., gambling), profit and loss sharing, asset and enterprise, micro-finance, small and medium sized enterprise (SME) finance, poverty alleviation, and environmental sustainability. Perhaps the underlying theme is profit sharing, doing good and avoiding harm to society and the environment.
In practice, other than refusing to finance “sin” industries, these expectations are hard to meet. Despite the expectation of profit sharing, most of the financing in the Islamic financial sector is debt based, where the form of financing is changed to that of a sale or a lease without necessarily changing its economic substance. For example, payment schedule and terms and conditions in home financing in the Islamic financial sector may look very similar to, if not the same as, those in a conventional mortgage.
Customers are usually told that the difference between Islamic finance and conventional finance lies in fulfilling certain technical conditions of classic Islamic commercial jurisprudence, which give financing the contractual form of a trade or a lease. Some customers scale down their expectations and take what is available; others turn away in disappointment.
This gap between expectations and practice produces sarcastic media coverage-for example “Don’t Call It Interest” (Richard C. Morais, Forbes, 2007) and “How Sharia-Compliant Is Islamic Banking?” (John Foster, BBC News, 2009). Such academic research papers as “Incoherence of Contract-Based Islamic Financial Jurisprudence in the Age of Financial Engineering” (Mahmoud A. El-Gamal, 2007) also raise similar issues. Unfortunately, form versus substance is a persistent debate in Islamic finance, with no closure in sight.
Regarding doing good and avoiding harm to society and environment, some argue that the job of financial institutions is to maximise profit for their shareholders and that profitable business leads to prosperous society. If shareholders want to do something charitable, they can do so in their private lives.
A counterargument is that to use the “Islamic” label, financial institutions need to go beyond changing the form of financing and earn their profits while actively doing some-thing positive. For example, Islamic banking should focus on SMEs rather than high-net-worth individuals; Islamic financing for cars should finance fuel-efficient vehicles, such as hybrids, instead of fancy gas guzzlers; and Islamic project financing should push for fair treatment of construction workers and efficiencies in energy, waste, water, and car- bon emissions.
Portfolio
In 2004, in a research paper titled “Socially Responsible Investing,” Paul Hawken found that “the cumu lative investment portfolio of the combined SRI mutual funds is virtually no different than the combined portfolio of conventional mutual funds.” In other words, the expected ethical difference was blurred.
In its 2007 “Guide to Climate Change Investment,” Holden & Partners provided a similar finding: “SRI and ethical funds perform just as well (if not slightly better) than their mainstream counterparts because in most cases they are in fact mainstream.”
Perhaps the titles of these two biting articles published in 2010 summarize their content: “100 Best porate Citizens? What a CROck!” (Marc Gunther) and “When Pigs Fly: Halliburton Makes the Dow Jones Sustainability Index” (R.P. Siegel). Paul Hawken also noted in 2004 that “Muslim investors may be puzzled to find Halliburton on the Dow Jones Islamic Index fund.”
How to deal with this gap between expectations and practice? Do financial institutions mislead customers with labels like “Islamic,” “responsible,” and “sustainable”? Or do customers have unrealistic expectations? Is it possible to bring the practice and expectations closer?
There is no easy answer to these questions. Having said that, one thing that could help in narrowing the gap between expectations and practice is honest communication of what exactly is the ethical proposition so that when someone takes “a small step” toward ethical ideals, it is not criticised for not being “a giant leap” but appreciated for what it is.
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