Selling Gold for Gold

Question: I observed a woman in the marketplace purchasing new gold jewellery by trading in her old pieces and adding some cash on top. When I told her that this transaction amounts to ribā (usury), she replied that as long as she paid extra money it should not be considered ribā. What is your view— is what she says correct or not? Please explain the issue in detail, for many people find it confusing and may easily fall into it.

Answer: It is impermissible to sell gold for gold when cash accompanies one of the two amounts, for that constitutes ribā. Whether the two portions of gold are equal in weight or not is irrelevant; once gold is exchanged for gold, it is not allowed to attach any monetary addition—be it cash or anything else of a different kind. Doing so is ribā, and the Prophet ﷺ forbade it, as is narrated in the ḥadīth of the necklace. Therefore, if someone wishes to replace the gold he possesses with other gold that he considers better, he must first sell the gold he owns for cash, take possession of that cash, hand over the gold to the buyer, receive its price in full, and only then use that cash to purchase the other gold he wants.

Question: Even if he buys the new gold from the very same seller?

Answer: Even if the second purchase is from the same seller, there is no harm, provided that actual possession takes place in both transactions. In other words, he first sells his gold to the merchant, receives the full price, and the merchant takes possession of the gold. Then, with that very price, he purchases other gold from the merchant, pays for it, and both parties take possession in the second contract as well. When this hand-to-hand settlement is observed in both dealings, the transaction is lawful.