Module 1: Introduction to Gold Trading

Module 1 – Ohio Markets Gold Beginner Course

1.1 What is Gold?

Gold is a precious metal valued for its rarity, durability, and versatility. Historically, it has been used as jewellery and currency, and today it also plays a key role in sectors such as electronics, dentistry, medical tools, and defense. Its limited supply and difficulty of extraction make it a store of value for centuries.

Historical Importance

Gold Standard: Until the 1930s, currencies were pegged to gold, limiting inflation risks.
End of Gold Standard: In 1971, US President Nixon decoupled the US Dollar from gold, moving the world to a fiat currency system.

Why Gold Remains Popular

Holds value over time (inflation hedge)
High liquidity in global markets
Multiple ways to trade (physical gold, ETFs, derivatives)

1.2 How Can You Trade Gold?

1. Buying and Selling Physical Gold

Includes bullion, coins, and jewellery
Profit occurs when prices rise
Security concerns: use safe storage or bank vaults
Historical example: 2019–2024, gold rose 81.65%, outperforming the S&P 500 (76.22%)

2. Investing in Gold ETFs

Offers exposure to gold commodity prices or gold-related stocks
Avoids physical storage issues
More liquid and tradeable than physical gold

3. Trading Gold Derivatives (CFDs & Futures)

Speculate on gold price movements without owning physical gold
Can go long or short, profiting from both rising and falling markets
Futures can be leveraged for higher capital efficiency

1.3 Why Trade Gold?

1. Diversification

Gold is negatively correlated with equities and risk assets.

Example: During the 2008 financial crisis, while most assets fell, gold rose ~21%

2. Inflation Hedge & Safe Haven

Holds value against fiat currency devaluation
Gold prices generally rise when the US Dollar weakens
Offers security during economic downturns

1.4 Who Trades Gold?

Retail investors: Physical gold, ETFs, CFDs
Speculators: CFDs & futures for short-term gains
Institutional investors: Banks, pension funds, hedge funds for hedging & diversification
Central banks: Significant holders (20% of mined gold), recently buying ~1,000t per year

1.5 Major Gold Markets

1. Spot Market

Trade gold at the current market price
Can buy physical gold via dealers or brokers

2. Gold ETFs

Track commodity prices or gold stocks
Avoid physical storage, more liquid

3. Gold Futures

Agreements to trade gold at a future date at a predetermined price
Used for hedging or speculation
Traded on exchanges, high liquidity, leverage available

1.6 Understanding Gold Prices

Factors influencing gold prices:

Jewellery & Industrial Demand – ~50% of total demand
Central Bank Purchases – ~20% of total mined gold
Investment Demand – Driven by inflation hedging & market volatility
Production Levels – Limited supply can push prices up; high production may cool prices
US Dollar Strength – Gold has an inverse relationship with USD

1.7 Common Gold Trading Jargon

Allocated Gold: Bullion owned outright, stored in a vault
Bailment: Gold held for safekeeping without ownership transfer
Caratage: Purity measure (24-carat = pure gold)
Doré: Unrefined gold-silver mixture from mines
Fineness: Investment-grade purity (995–999 parts per thousand)
Kilobar: 1 kg investment-grade gold bar
Paper Gold: ETFs, futures, or options without physical ownership

Module Recap

Gold is rare, stable, and highly valued, used for wealth preservation and industrial applications
Offers capital appreciation, portfolio diversification, and a safe-haven asset
Traded via physical gold, ETFs, CFDs, futures
Key market drivers: demand, central banks, US Dollar, production levels
Understanding terminology like allocated gold and caratage is crucial