Module 2: Types of Gold Investment

Module 2 – Ohio Markets Gold Beginner Course

2.1 Physical Gold vs. Gold Securities

Gold can be traded in two primary ways:

Physical gold trading involves buying gold bullion such as bars, ingots, or coins. Investment-grade gold is 99.5% pure or higher.

Gold for jewellery is usually 18K (75% gold, 25% alloy) or 22K (92% gold) for durability.
Lower purity and added craftsmanship costs reduce investment returns.
Recommendation: For investment purposes, use investment-grade gold bullion rather than jewellery.

Gold securities include ETFs, mutual funds, stocks, and derivatives such as CFDs and futures.

Benefits: Broader exposure, ability to use bi-directional strategies, and higher liquidity.
Suitable for traders who want to gain from gold price movements without handling physical gold.

Feature	Gold ETFs	Gold Mutual Funds
Management	Passively tracks spot gold price	Actively managed, can include gold stocks & futures
Expense Ratio	Lower	Higher
Diversification	Limited to gold price	Higher diversification
Trading	Throughout the day	Once per day at NAV

Gold ETFs: Trade like stocks, low-cost, track spot gold price, ideal for capital gains
Gold Mutual Funds: Actively managed, include gold stocks/futures, offer diversification, but higher cost

Tip: Study the fund’s prospectus carefully; distinctions between ETFs and mutual funds are increasingly blurred.

Publicly listed gold mining companies offer indirect exposure to gold
Stock value often rises when gold demand increases
Includes:
- Mining companies
- Gold streaming companies (provide financing to miners)
- Listed jewellers

Investing in gold stocks provides a diversified approach compared to physical gold.

CFDs are financial derivatives that track gold prices without owning the metal.

Open a contract with a broker at the current gold price
Profit or loss = Difference between opening and closing price
Example:
- Gold price opens at $2,293.50, mini contract = $10 per $1 price movement
- Gold rises to $2,343.50 → 50 x $10 = $500 profit per mini contract

Pros	Cons
No need for physical gold or storage	Advanced strategy, not beginner-friendly
Leverage increases potential gains	Leverage also increases potential losses
Trade in both directions	Margin calls possible in volatile markets
Flexible trade duration	Requires careful trade sizing

CFDs offer convenience and flexibility, but losses can exceed initial capital if not managed properly.

Issued by banks or gold dealers, certifying ownership of a certain amount of gold
Can be redeemed for cash or bullion
Risks: unallocated gold, fraudulent issuers → use reputable, regulated providers

Two main ways to trade gold: Physical gold and gold securities
Physical gold: Bullion (bars, ingots, coins), jewellery (less pure, lower investment value)
Gold securities: Stocks, ETFs, CFDs, futures – broader exposure, more strategies
Gold ETFs: Track gold price, low-cost, tradeable throughout the day
Mutual funds: Actively managed, higher diversification, trade at end-of-day NAV
Gold stocks: Mining companies, jewellers, streaming companies
Gold CFDs: Speculate on price, leverage, no physical ownership
Other methods: Gold certificates and gold savings accounts, convenient but require trusted issuers