Saturday, 8 February 2014

Gold 101

Here are some basic infos about gold

The use of earliest gold coin could be tracked back to 561-546 BC. This is a gold stater minted in Sardis, issued by Lydian King Croesus who introduced the bimetallic coinage system that has been used in the Western world until the 20th century.
The importance of this more than 2,500-year old coin lies in the fact that it enabled the first system of free and open markets. The result was the flourishing culture of the ancient Mediterranean world.

Dinar and Dirham
In the time of the Prophet Muhammad (SAW), the currency of the Arabs was the Dinar (gold coin) and Dirham (silver coin). The first dinars and dirhams minted by Muslims was during the Khalifate of Uthman bin Affaan, wherein the coins differed from the original ones in circulation by the Arabic inscription of “in the Name of Allaah” on the obverse margins. During the Khalifate of Umar ibn Al-Khattab, the coin standard was introduced so that the weight of 10 dirhams was equivalent to 7 dinars (1 mithqal).
Gold and silver coins remained official currency in its original precious metal form until the fall of the Ottoman Empire after World War I (1910s). Since then, dozens of different paper currencies were made in each of the new post-colonial national states. However, many Arab countries like the United Arab Emirates (UAE), Morocco, Qatar, Libya and Iraq still use the names (Dinar and Dirham) to refer to their non-precious metal currencies.

In the 19th and early 20th centuries, gold still played a key role in international monetary transactions since the gold standard was used to back currencies. Many world empires have fallen over time and with it, its currency, which is normally known as the world reserve currency. The most recent was the British Empire and the demise of the British pound as the world reserve currency until the end of World War II. Then the US Dollar took over as world reserve currency but on 15 August 1971, the United States terminated convertibility of the US Dollar to gold. This brought the Bretton Woods system to an end and saw the USD becomes fiat currency.

Fiat money has been defined variously as:
*any money declared by a government to be legal tender.
*state-issued money which is neither convertible by law to any other thing, nor fixed in value in terms of any objective standard.
*money without intrinsic value.
The term derives from the Latin fiat ("let it become", "let it be done", "it shall be").

Since gold is bought and sold in US Dollars, any decline in the value of the dollar causes the price of gold to rise.

Gold as an Investment
Gold is the most popular precious metal as an investment. It has often been called the 'crisis commodity' because it tends to outperform other investments during periods of world tensions. That is why gold is sold off during economic weakness.

The most traditional way is buying the gold bullion bars. These come in various sizes and shapes usually in the highest purity form i.e. 999.9 fine gold. The usual weight ranges from 10g to 1kg (there's even 400 troy ounces bar in Europe, that's 12 kg). Most popular ones in Malaysia are PAMP Suisse, Poh Kong Bunga Raya, Wah Chan, Tomei and Public Gold bars.

And then there are gold coins which are usually (but not always) lower purity than bars e.g. 916, 917 etc. When purchasing gold and silver coins, one must be aware of whether the coin is bullion (priced relative to metal quantity) or numismatic (priced at a high value [50% and more] over its metal quantity due to rarity). Do not purchase numismatic coins as they are geared towards coin collectors and are sometimes called medallions. Dinar and Dirham are gold and silver bullion coins, respectively.

The largest integration of the Dinar and Dirham into regular society in the world are in Indonesia, Malaysia and the surrounding areas. There are also small initiatives in Pakistan, United Kingdom, South Africa and the United States of America.

Our former Prime Minister Tun Dr. Mahathir Mohamad’s push towards Dinar usage was seen as far back as 2000/2001 with the establishment of Malaysia’s legal tender bullion coin, the Kijang Emas. Then there was the establishment of e-dinar Ltd in 2000 and the ‘e-dinar’ online electronic payment system, as well as the establishment of the World Islamic Mint [WIM] in the United Arab Emirates (UAE) for the minting of the ‘Islamic Dinar’ or ‘Dinar Muslim’ (minted by Emirates Gold). The state Government of Kelantan began minting dinar/dirham (Kelantan Dinar) in 2006 and its new minted coin set (minted in the UAE) came out in August 2010, while the Perak state government began minting its coins (Perak Dinar) in February 2011. Malaysia has a large variety of editions of the dinar/dirham coins including the Public Dinar (Public Gold International Sdn Bhd), GCP Dinar (Goldcrest Pavilion Sdn Bhd), Dinar Darul Takzim, Nabawi Gold Dinar (24 Qirats), Dinarius & Dirham, Malaysia Dinar (Royal Mint of Malaysia), Dinar Kulim (Dinar Gold Enterprises), and Dinar Shari’i.

Islamic Dinar & Dirham
Islamic Dinar
Kelantan Dinar & Dirham
Kelantan Dinar
 Perak Dinar & Dirham
Perak Dinar
 Public Dinar
Public Dinar
GCP Dinar
GCP Dinar
Nabawi Dinar
Nabawi Dinar

Gold in jewellery form i.e. gold chains, bracelets, pendants, rings etc. are still popular. However, since jewelleries are worn, the margin spread is high when selling it back to goldsmith retailers as 'used gold'. Read more about spread here. With current worrying statistics in crime rate, especially snatch-theft, I personally would not prefer to wear gold when going out. 

Storage Options
One of the first places people consider storing their precious metal is in a safe deposit box at a local bank, which is a good choice but not perfect as you have limited access to it during banking hours. There are also private companies offering this service with more flexible access hours and higher insurance value. You can get a list of some Safe Deposit Box services here. The second common place is home storage in a safe or hiding place, which is a good idea for small metal quantities but not perfect as houses can catch fire, broken into and/or affected by nature disasters. A third place for storage is to bury it on your property, ideally when no one is looking, in an airtight and waterproof container. A fourth option is storing it with Allocated Gold Storage Service (AGSS) provided by your gold seller, which is good if you are out-station buyers because the storage fee might be more cost-effective than the travelling expenses to collect the gold. Read more on AGSS here

Whichever of these you choose to do, only tell one person you trust about where it is, whose job it is to access it if you are unable to. The options above all have their advantages and disadvantages, which is why it maybe best to use a combination of them to be safer.


Norazharina Mat Amin

(Updated 2nd April 2014)

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