With gold making headlines in 2025 as it reached a new market record of over US$4,000 per ounce, many Australians are taking a fresh look at its role in long-term wealth building.

Whether you’re a new investor or someone focused on retirement planning, gold’s recent surge has prompted questions about its place in a diversified strategy.

To make informed decisions, it helps to understand how gold evolved from an ancient currency into the modern financial asset we know today.

A brief history of gold as money and wealth

The allure of gold stretches back thousands of years. Ancient civilisations, including the Egyptians and Romans, recognised its rarity, durability and value. Unlike many commodities, gold is resistant to corrosion and is easily melted, shaped and divided, making it an ideal store of value.

Around 600 BC, in the ancient kingdom of Lydia (modern-day Turkey), the first official gold coins were minted. This marked a pivotal shift, as gold moved beyond a symbol of status and became a reliable, portable medium of exchange. Throughout history, its scarcity and universal acceptance have linked gold with wealth.

By the 19th century, this relationship became formalised through the “gold standard”.

The gold standard era

The gold standard era dominated global finance from the 19th century until the early 20th century. Under this system, national currencies were backed by gold, meaning governments promised their currency could be exchanged for a fixed amount of the metal.

A British pound or American dollar represented a specific quantity of gold held in government reserves. This created stability in international exchange rates and imposed discipline on government spending, because countries couldn’t print money without adequate gold reserves.

The system supported expanding global trade, giving merchants confidence that currencies held consistent value relative to gold. However, it also limited flexibility during economic downturns, as governments were unable to adjust money supply to stimulate growth. The global supply of gold also couldn’t expand fast enough to support growing economies.

The transition to fiat currency

The gold standard began to falter during World War I, when countries suspended convertibility to finance military spending. A modified version returned in the 1920s, but the Great Depression dealt another significant blow.

Following World War II, a new international monetary system was established. Under the Bretton Woods Agreement, the US dollar was the only currency directly convertible to gold at the fixed price of $35 per ounce. Other major currencies then pegged their value to the dollar, creating a modified, dollar-centric gold-backed system.

This changed in 1971 when US president Richard Nixon ended the USD’s convertibility to gold, completing the move of all currencies to “fiat” currencies. Fiat currency is defined as money that is not backed by a physical commodity like gold or silver, but by government decree (or “fiat”). Its value is derived entirely from market confidence and the central bank’s monetary policy.

This shift allowed central banks more flexibility in monetary policy, but also introduced inflationary risks that had previously been constrained by gold reserves.

Gold’s current role in financial markets

While gold no longer backs global currencies, it remains relevant in financial planning and wealth management. Instead of serving as money, gold now acts as a safe-haven asset that often holds or increases value during economic uncertainty.

Gold is used today in several key ways:

⦁ Hedge against inflation: Because gold’s supply is limited, its value tends to rise alongside the general cost of goods and services when a fiat currency’s purchasing power declines due to inflation.

⦁ Crisis protection: During financial crashes, wars or geopolitical uncertainty, investors shift funds from volatile stocks and bonds into gold, viewing it as a reliable store of value that is not tied to any single government or company’s performance.

⦁ Portfolio diversification: For a financial planner, Gold remains an important tool for diversification. Its low correlation with stock markets means that when equities fall, gold can rise, helping to stabilise a portfolio’s overall returns.

Investors can access gold in several ways:

⦁ Physical gold: Bullion bars and coins, which provide the most direct ownership.
⦁ Gold exchange-traded funds (ETFs): Securities that track the price of gold, allowing investors to buy and sell gold exposure easily on a stock exchange.
⦁ Gold futures: Contracts that allow speculation on the future price of gold.
⦁ Mining shares: Stocks in companies that explore for or extract gold, offering exposure with the added risk and reward of company-specific performance.

Recent trends in gold markets

As the graph below shows, the price of gold has surged over the second half of 2025, reaching over US$4,000 per ounce in October.

This upward movement has caught the attention of investors, particularly as global markets react to geopolitical tensions and economic uncertainty.

Several factors have contributed to this surge:

Central bank purchases

Many central banks continue to buy gold to diversify reserves and strengthen financial stability. Central banks accumulated over 1,000 tonnes in 2024, according to the World Gold Council, and are on track for similar volumes in 2025. This would be the fourth year in a row that central bank purchases exceed 1,000. Persistent buying from reserve banks has contributed to upward pressure on prices.

Expectations of interest rate cuts

Investors anticipated reductions in interest rates by major banks over the course of 2025. Lower rates typically weaken the US dollar, making dollar-denominated gold cheaper for international buyers looking to preserve wealth and hedge against currency risk.

What does this mean for Australian investors?

For Australians approaching retirement or building wealth for the future, gold’s recent performance might seem attractive. However, working with a knowledgeable financial adviser on the Gold Coast will help you look beyond short-term price movements to assess whether gold fits within your comprehensive, personalised investment strategy.

The key is understanding gold’s unique characteristics and determining whether they complement your specific financial goals, risk tolerance and investment timeline. Whether you’re a wealth creator in your peak earning years, someone who is future-focused and approaching retirement or already enjoying your retirement years, the role of gold in your portfolio deserves careful, individualised consideration.

General Advice Warning

The information in this blog is of a general advice nature only and has been prepared without taking into account your personal objectives, financial situation or needs. Because of that, you should, before acting on the advice, consider the appropriateness of the advice, having regard to those things.