So, you’ve been wondering if you should invest in Gold? You might have heard how allocating a small percentage of your investment portfolio to Gold can potentially hedge against inflation during times of extreme economic volatility, but I don’t blame you if your eyes glaze over hearing that. While it’s important information to know, we believe that understanding the history behind gold will help new investors better appreciate its place in an investment portfolio.
Gold Throughout History
Ask anyone and they’ll likely say that gold is associated with images of grandeur, extravagance and wealth, and this conception is partly driven by what we see in the media. Gold is often depicted in film and television as gleaming bricks stacked neatly in underground vaults, worn on the heads of Kings and Queens, or embellishing palaces of Ancient Civilisations in distant lands.
If you look at its influence within our shores it is fascinating to see how Gold has shaped modern Australia. Discoveries of major gold deposits in the 1850s saw mass migrations of international fortune seekers into the country, fuelling economic production, infrastructure, and huge swells in population growth. To put this craze into perspective its estimated the Victorian gold rush alone tripled Australia’s population and accounted for a third of the world’s entire gold production between 1850 to 1900.
The First Gold Coins
The fact is that Gold has been ever-present throughout the existence of mankind. Its inherent characteristics allow it to flourish as a currency of universal value when all else fails:
- Fungibility (one ounce of pure gold is equivalent to another ounce of pure gold i.e., they are indistinguishable and therefore tradable)
- Difficulty to counterfeit
- Limited supply
- General acceptance and recognition
However, it wasn’t always this way. Before the first coins were minted, society would likely use a bartering system to trade: if I were a farmer and you a shoemaker, I’d trade you two dozen eggs for a pair of leather boots. But if you didn’t want my eggs or deemed the value of my eggs to be less than the value I gave them you might not accept the trade and I’d be barefoot for some time.
Luckily, around 700BC the Lydian Civilisation (Turkish origins) had the idea to assign value to uniform bits of metal cut from gold, silver and bronze. This meant we now had common ground for transacting and storing value, so I could buy new boots anytime and anywhere.
Gold As An Investment Option
Investors have a range of options to gain exposure to the precious metal; they can buy gold bullion directly from a mint, purchase shares in gold mining companies, or opt for an Exchange Traded Fund (ETF) that tracks the price movements of gold.
Guardians at itrust invest make contributions into the world’s first gold ETF created by ETFSecurities. This option (ASX: GOLD) is backed by physical bullion held in trust by JPMorgan Chase in London and aims to provide a return equivalent to the AUD price movements of gold minus any applicable management fees.
In short, what makes Gold a useful addition to a diversified investment portfolio stems from the value that society has always placed on the metal, thus perpetuating its worth. As such, a gold investment can be an excellent preserver of wealth and purchasing power during times of sustained high inflation. Its low correlation to other asset classes means it can perform differently to other investments, almost acting as an insurance policy during times of economic distress. Past performance is never a reliable indicator of future performance though, and gold prices are subject to market forces of supply and demand.
But for Guardians who invest on behalf of the little ones in their life, contributions to our Gold ETF could be the anchor in a storm they may experience throughout their investment journey. So make a headstart on your child’s future today!
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