Exchanging old gold for new gold
What is the ruling on the stipulation of receiving the price for exchanging old or used gold for new gold?
Is it a condition for the seller to receive the price of the old gold from the merchant before purchasing new gold and paying for its price?
The Prophet forbade selling gold for gold and silver for silver for deferred payment (al-nasi`a) or an excessive difference in weight (al-fadl). This was mentioned in several ahadith among which is the report narrated by Sa'id al-Khudri and others in which the Prophet said, "Do not sell gold for gold except for like for like and do not sell silver for silver except for like for like. Do not increase one over the other and do not defer payment." This is because the effective cause ('illah) for this prohibition is that these metals are utilized as monetary instruments.
Gold and silver jewelry
Because they are manufactured, gold and silver jewelry are not considered mediums of exchange. Therefore, the effective cause that stipulates the condition of weight equivalency and hand-to-hand transaction and which necessitates the prohibition of selling on credit no longer applies. Theyare therefore like any other commodity wherein the value of craftsmanship (in this instance, the fashioning of jewelry from raw gold) is taken into account.
It is known that a ruling revolves around the presence or absence of its cause. This is the opinion of Ibn Taimiya, his student Ibn al-Qayyim and others. It is likewise the opinion transmitted through Mu'awiya (may Allah be pleased with him) and the scholars of Syria, Lebanon, Palestine and Jordan. In addition, it is the position of Imam Malik and that mentioned by Ibn Qudama from Hanbali scholars who permitted paying for craftsmanship. People have put this opinion into practice as mentioned in Al-Insaf by al-Mawardi on the condition that it does not involve prohibited craftsmanship such as gold jewelry crafted specifically for men. It is prohibited for men to wear such jewelry without a dispensation.
Ibn al-Qayim said in I'lam al-Muwaqi'in, "Permissible jewelry becomes, by virtue of permissible craftsmanship, of the same class as clothing and commodities and not of the same class as gold and silver monetary instruments. It is for this reason that it is not zakatable. No usury is involved when commodities are exchanged for monetary instruments. Likewise no usury is involved when gold jewelry is exchanged for monetary instruments. By virtue of its craftsmanship, permissible gold jewelry has ceased to be a medium of exchange but has become a tradable object. Therefore, there is no sin in trading it against gold."
Based on the above, there is no objection in Islamic law to exchanging old or used gold for new gold. It is not a condition to pay the price of old gold before paying for new gold; it suffices to pay the difference in price. This is because gold jewelry is no longer considered a medium of exchange. Due to its craftsmanship, it is considered like any other commodity which is lawful to be sold for an increase in price or for deferred payment.
Allah the Almighty knows best.