Gold Coin Money

Gold: An Opportunity For The Savvy Investor

Gold is valued for its glowing radiance and beauty. Its history as a valuable metal began in the day-to-day lives of people in ancient times. The fascination is thought to date back to 40,000 B.C., with archaeologists finding evidence of gold in Palaeolithic caves. The ancient Greeks viewed gold as a symbol of social status and glory amongst immortal gods and demigods. Emulating them, they adorned themselves in gold, and used it for trade, to signify their own wealth and higher social standing.

Egyptians were the first to introduce the exchange ratio of gold to silver, where a piece of gold was equal to two and a half that of silver. Gold was a very valuable metal in the ancient Kingdoms of Egypt, used to create solid gold capstones on the Pyramids of Giza. However, while Egyptians were the first to use gold to barter, they were not the first to use it as currency. The gold coinage that we recognise today originated in the Kingdom of Lydia (modern-day Western Turkey) around 550 BC.

In 1792, the United States passed the Mint and Coinage Act, with the bill creating a fixed price of gold in terms of US dollars. During this time, gold was 15 times more valuable than silver. Yet when the US was unable to pay its debts during the Civil War in 1862, paper money was declared to be legal tender, and years later they removed the silver dollar from circulation.

After the damage caused to the gold standard and the financial markets by the two World Wars, world leaders came together and formulated the Bretton Woods Agreement. Gold prices were pegged to the US dollar, with the surviving US economy having been considered the world’s strongest.

gold investment
Source: Canadian Museum of History

In 1970, as the Vietnam War raged, the American economy was hit hard and the gold exchange standard collapsed. During that time, President Nixon decided to leave the Bretton Woods Agreement. A few years after the event – known as the Nixon Shock – gold prices skyrocketed to a record high of over $800 per ounce in 1980.Gold is a metal of great value, as well as a symbol of wealth, used for high-quality jewellery and accessories, and for the creation of art.

It is even used in food – the ‘Golden Opulence Sundae’ at New York City’s Serendipity 3 is one of the most coveted desserts in the culinary world of the elite, for its abundant use of edible gold. Gold has become not only a valuable asset but a smart form of investment.

In the past, gold was found everywhere in the world and catalysed mass migration to the goldfields of Australia and North America, with people across the world hoping to mine their fortunes. The resulting scarcity is what contributes to today’s higher gold prices.

Investors can choose to purchase physical bullion simply because of its physical presence, compared to other forms of investment such as bonds and stocks. It is also prized for the longevity of its value, especially by those who believe that gold is bullish and will continue to rise in worth. Cautious investors are smart enough to invest in physical gold bullion to prevent inflation risks and attempt to hedge against currency risks. They also invest to profit and/or prevent damage from geopolitical tension and to diversify their portfolio. The Global Economic Crisis in 2008, caused by the housing bubble burst in the US, has weakened the US dollar and caused a significant increase in gold prices, which reached more than $1900 per ounce in 2011.

Physical gold bullions can be expensive for some new investors. Alternatively, investors can consider buying in gold stocks listed companies in the ASX. Just like other stocks in the indexes, it is riskier in terms of volatility than owning physical gold bullion itself. However, some of these gold stocks have shown a great record of returns looking at both fundamentals and technical analysis.

gold investor US
Source: Antwerp Gold Centre

As mentioned above, geopolitical tension can cause gold prices to either increase or decrease. In today’s political climate, tensions are arising from Donald Trump’s propositions to close America’s border, retreat from trade agreements, cripple foreign imports with heavy tariffs, and impose corporate tax cuts with the aim of getting American companies to restrict their operations to solely US markets. All of these measures can result in trade wars that pose significant currency risks. Gold traders can, therefore, capitalise on this tension and push its prices even higher. Below is the list of ASX gold stocks that are worth looking at:

  • Resolute Mining Limited (ASX: RSG) is a gold mining and exploration company with three operating mines in Mali, Africa, and Queensland, Australia. It was trading $0.25 at the start of 2016 and is now at $1.417 with a potential short-term buying opportunity and an upside growth of 10 per cent. Resolute Mining maintains a strong balance sheet with substantial unencumbered cash reserves. The mines continue to generate strong operating cash flows, and exciting growth projects are on track for completion both on time and on budget. The company confirmed on their Quarterly Activities Report last March 2018 that the annual production target will reach up to 500,000 ounces of gold.
  • St. Barbara Ltd. (ASX: SBM) is an Australian gold production and exploration company with operations in Western Australia and in Papua New Guinea. The company released their Quarterly Report for Q3 March 2018 and have shown a strong balance sheet with $262 million cash and no debt. Its technical analysis is looking attractive trading at $4.790 and with over 225 per cent growth since 2016.