An investor needs some liquidity from the bank. He approaches the bank and enters into an agreement where the bank will buy £1 million worth of gold today from him. In return, the investor agrees to buy back the gold from the bank in 6-month time for a pre-determined mark-up price. Is this permissible?
It is not permissible to use gold as part as a repo agreement.
Proof: AAOFI considers repo agreement to be a loan rather than a trading contract. The actual gold represents a collateral to secure the loan as opposed to a traded asset. Hence, what seems to appear to be an investor buying the gold back from the bank, is in fact a debtor returning the loan, and in exchange, the bank returns the gold to him. The mark-up price paid by the investor resembles an interest payment.
And Allah knows best!
(Mufti) Billal Omarjee