Is it permissible to buy and sell precious metals and commodities on the market?

Q: I am interested in trading precious metals and commodities on the market and wanted to know if this is halal. Looking at the market they seem to sell silver based on GBP. Am I allowed to buy and sell these items in the same way shares are bought and sold, in order to gain a profit when the price increases?

الجواب حامدا ومصليا ومسلما ومنه الصدق والصواب

A: It is permitted to trade precious metals and commodities on the market provided the Shariah principle governing such trade are adhered to.  Aside from the requirements of the commodity itself being halal and abstention from ribā and gharar etc, one of the requirements of such trade is that the buyer must take delivery of the precious metal or commodity prior to selling it on to a third party.  Delivery includes proprietary transfer and physical or constructive possession.

The way financial markets work, delivery of the commodity does not take place upon the sale even if the sale itself is registered electronically.  E.g., transactions on the London Stock Exchange are settled on a T+3 basis.  If the seller does not deliver on T+3 then buyer may purchase the commodity from the market and the seller has to make up any loss suffered by the buyer.  This is further proof that delivery does not take place at the time of the sale.  Thus, day trading is not possible even if the trade is at spot.  According to Shariah principles, the buyer will have to wait for delivery of the commodity before selling to a third party.  Meanwhile, if the price of the commodity falls the buyer will either have to suffer a loss or else wait [and hope] for an increase in the price.

In summary, whilst it is possible to trade precious metals and commodities on the market provided the Shariah principle governing such trade are adhered to one opens oneself to adverse price risk.

 

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