How Aussie Gold Investors Can Benefit from This Double Whammy

Auric Goldfinger is one of England´s richest man.

Yet the English secret service is keeping a close eye on him.


Well, they suspect he is gold smuggler. So far, many government agents have tried to catch him red handed, but everyone has failed miserably. The fact is, Goldfinger is too clever.

Why smuggle gold out of the country?

Well, for an explanation, let’s snoop into a conversation between Colonel Smithers and James Bond, or, as he is also known, agent 007:

Colonel Smithers: Gentlemen, Mr. Goldfinger has gold bullion on deposit in Zurich, Amsterdam, Caracas, Hong Kong… worth 20 million pounds. Most of it came from this country.

James Bond: Why move it?

Colonel Smithers: Because the price of gold varies from country to country. If you buy it here at 30 dollars an ounce, you can sell it in, say, Pakistan for 110 dollars and triple your money… provided, of course, you have the facilities for melting it down.

James Bond: And has he?

Colonel Smithers: Apart from being a legitimate international bullion dealer, Mr. Goldfinger poses… no, that’s not quite fair… *is*, among his many other pursuits, a legitimate international jeweler. He’s legally entitled to operate modest metallurgical installations. His British one is down in Kent. We have yet to discover how he transfers his gold out of the country… Lord knows we’ve tried. If your department can establish that it is being done illegally, the bank can institute proceedings to recover the bulk of his holdings.

James Bond: I think it’s time Mr. Goldfinger and I met… socially, of course.

Colonel Smithers: I was hoping you’d say that.

Yep, I´m quoting from the mid-1960s movie Goldfinger.

As you may remember, gold was quite important back then. The US dollar was pegged to gold, and in turn every other currency was pegged to the US dollar. As Smithers also explained, gold back then established the value of the British pound, and the US dollar.

Bond ends up meeting with Goldfinger…and figuring out how he was smuggling gold.

As it turns out, he was melting it into plates which he would then attach onto his Rolls Royce. He would then simply drive his car out of the country.

But, the main take away here is that gold prices vary from country to country. Gold investors outside the US can make gains not only when gold prices move up, but can also benefit from currency exchange rates.

Let me explain.

For Aussie gold investors, there are two factors affecting the gold price. One is the price of gold itself, which can go up or down. And, as we mentioned, this is priced in US dollars.

The other is the exchange rate between the US dollar and the Aussie dollar, which can also go up or down.

When the price of gold falls, Aussie gold investors will lose money if the exchange rate stays the same. They’ll suffer even bigger losses if the Aussie dollar moves up against the US dollar at the same time.

Fear is seeping into the markets

If the Aussie dollar moves down at the same time as the gold price goes up, then they will recoup money from the exchange rate.

On the other hand, Aussie gold investors will profit from higher gold prices as long as the exchange rate stays the same. If, at the same time, the Aussie dollar goes up against the US dollar, then they will make some money from the price movement but lose some money on the exchange rate.

The best scenario is for the gold price to rise and the Aussie dollar to fall at the same time. Then gold investors can benefit from both, higher gold price AND the falling exchange rate.

Which brings us to the point of our article today…

Global growth is slowing and fear is seeping into the markets.

When the future looks bleak, investors start jumping into safer assets, like gold. Gold is a safe haven and a wealth protector. And, this could push gold prices up.

At the same time, here in Australia, we are seeing deteriorating property prices, weaker consumer spending and GDP figures. An interest rate cut is looking increasingly more likely.

All this could take a toll on the Australian dollar.

The increasing likelihood of higher gold prices and a lower Australian dollar makes it an ideal scenario for Australian investors to profit from both the price of gold and the exchange rate.

That´s why you should be buying gold.


Selva Freigedo,
Editor, Markets & Money

Selva Freigedo is an analyst with a background in financial economics. Born and raised in Argentina, she has also lived in Brazil, the US and Spain. She has seen economic troubles firsthand, from economic booms to collapses and the effects of hyperinflation, high unemployment, deposit freezes and debt default. Selva now writes from her vantage point here in Australia. She is an editor for Markets & Money and every week goes through each report and research note produced by our global network of trusted advisors to find, in her opinion, the best investment opportunities for you in Australia and overseas. She packages these opportunities for you in Global Investor.

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