FIN310 • Session 10 — Treasure Hunt
Theme:

🗺️ Gold Quest: Follow the Map, Unlock the Treasure

Solve each clue to unlock the next chamber. By the end, you'll know why gold matters, how to access it (ETF vs futures vs physical), and where Bitcoin fits into the “sound money” conversation. Classroom use only

1
Why Gold?
2
Bretton Woods
3
Real Return
4
Choose Vehicle
5
Futures Risk
6
Fiat & Bitcoin

Clue 1 — Why does gold belong on our treasure map?

Select exactly three valid reasons:

Clue 2 — Bretton Woods → 1971 Break

Mini-timeline
1944: Currencies peg to the USD; USD convertible to gold at $35/oz (official).
1968: Two-tier market (official vs private).
1971: Convertibility suspended (“Nixon shock”).
1973→: Free-floating era.
Mystery Dossier — “The French General’s Gold”
  • Who: President Charles de Gaulle (guided by economist Jacques Rueff).
  • What: Mid-1960s France redeemed dollars for U.S. gold under Bretton Woods, reportedly even sending a French Navy vessel to collect bars.
  • Why it mattered: Highlighted growing strains in the $35/oz peg as foreign central banks converted dollars to metal.
  • Myth buster: “France got nothing.” False. Redemptions did occur; the drama helped set the stage for the Aug 15, 1971 suspension.

Question: In 1971, the U.S. ended which commitment?

Illustrative classroom sketch.

Clue 3 — Make the Real Return ≈ +4.0%

Real = ((1+nominal)/(1+inflation)) − 1 = 3.88%

Hint: Hit within ±0.2% of +4.0%.
Mystery Card — “No Gold for You?”
EO 6102 — Apr 5, 1933: U.S. residents ordered to deliver most monetary gold (exemptions: small collections, jewelry, industrial/dental).
Gold Reserve Act — Jan 30, 1934: Nationalized monetary gold and set $35/oz.
Legal again — Dec 31, 1974: Private bullion ownership legalized (President Ford).
Myth check: “Gold is illegal to own.” — False since 1974.

Clue 4 — Choose your vehicle (ETF vs Futures vs Physical)

Scenario A — Student Budget

$300–$1,000; small position; low ongoing fees.

Scenario B — Jeweler Hedge

~200 oz inventory; worry about near-term price drops.

Scenario C — Intraday Liquidity

Quick demo; deep order book; spreads matter most.

What is an ETF? (30-second primer)

Exchange-Traded Fund (ETF) = pooled vehicle that trades on an exchange like a stock. Gold ETFs such as GLD/IAU/GLDM are typically physically backed trusts: they hold bars in vaults; share price seeks to reflect spot gold minus fees. Liquidity comes from market makers and the create/redeem process with Authorized Participants.

Gold ETF quick profiles
  • GLD — very liquid; expense ratio ~0.40%.
  • IAU — lower fee (~0.25%); solid liquidity.
  • GLDM — very low fee (~0.10%), smaller share price.
Futures (COMEX)
  • GC 100 oz; min tick $0.10/oz ⇒ $10/tick. Near-24h trading.
  • MGC (Micro) 10 oz; $1/tick; student-friendly sizing.
  • Daily mark-to-market; leverage amplifies both gains & losses; roll months.
Physical (coins/bars)
  • Reputable dealers/mints; verify purity/weight.
  • Expect premiums over spot + storage/insurance.
  • Best for “store of value” framing; less convenient for rebalancing.
Marketing vs. Facts — Issuer pages are promotional. Cross-check expense ratio, tracking difference, and liquidity. For neutral definitions: SEC ETF overview.

Clue 5 — Futures: Efficient but Spicy 🌶️

Mini P/L Simulator

P/L: +$2,000 (ignores fees/interest)

Return on Margin: +11.1%

Mark-to-market: Losses are realized daily. Leverage magnifies both gains and losses.

Challenge

With the current inputs, enter the correct total P/L to open the vault:

Margin & Risk Lab — where do calls happen?

Contract: standardized size (GC=100 oz, MGC=10 oz). Initial margin is a performance bond posted up front; maintenance margin is the minimum equity you must keep. If equity falls below maintenance, you get a margin call to top back up (usually to initial).

Equity = initial deposit + unrealized P/L (mark-to-market). Call if Equity < Maintenance requirement.
Unrealized P/L: $0
Initial deposit (total): $18,000
Equity now: $18,000
Maintenance req (total): $16,400
Price at margin call: (given current entry/size/contracts)
Distance to call:
🙂 All clear. No call at current mark.
Case study — squeezes
  • Silver 1979–80 (Hunt brothers): heavy buying + leverage + tight supply drove a sharp spike toward ~$50/oz before rules/margin changes and forced deleveraging crashed prices.
  • Silver 2011: rapid run-up near $49/oz followed by steep reversal as margin was raised and longs unwound.
  • Gold recent cycles: sharp rallies have often coincided with falling real yields, strong official-sector buying, and speculative short-covering. Leverage cuts both ways—margin can accelerate up and down moves.
Teaching sketch, not investment advice.

Final Chamber — Fiat, Bitcoin, and Gold

Compare (plain language)

  • Gold: Physical, scarce, long history; storage/premiums; low long-run correlation.
  • Bitcoin: Digital asset with fixed supply schedule (21M cap); self-custody risk, high volatility; policy/reg uncertainty.
  • Fiat (USD): Unit of account, legal tender; flexible supply; purchasing power shaped by inflation/real rates & policy credibility.
Classroom take: Some view gold/Bitcoin as alternatives to fiat for saving; others emphasize fiat’s stability for transactions/taxes.

Quick Check (choose one of each)

Video Vault — Recommended Clips

Classroom tip: If embeds are blocked on campus wifi, use the “Open on YouTube” links.

Practice — Quick Questions

  1. What ended in 1971 and why did that matter for gold pricing?
  2. List three drivers that could lift gold even if current CPI declines.
  3. Why are real returns crucial?
  4. One benefit + one risk each for Bitcoin and gold.
15 True/False • ~3 minutes
🧠 Open the 15-question T/F Quiz
Opens in a new tab • instant feedback

Simple P/L — Same exposure (100 oz), different % returns

Current price P₀ = $4,200/oz, change Δ = ±$300, exposure Q = 100 oz.
$ P/L is the same across ETF, futures, and a gold bar (no fees): $P/L = Δ × Q. % return depends on the capital used.

Capital used for % return

  • ETF or Gold Bar: Use notional N = P₀ × Q = $4,200 × 100 = $420,000.
  • Futures: Use margin deposit M (a small % of N = P₀ × Q).
    Set M: $ —% of notional
    Typical initial margin is about 3–10% of N (varies by exchange/broker/vol).
    Quick-set:
Equations
Dollar P/L: $P/L = Δ × Q
ETF/Bar %: % = $P/L ÷ (P₀ × Q)
Futures % (on margin): % = $P/L ÷ M

Scenarios

Price up to $4,500 (Δ = +300)

$P/L: Δ × Q = 300 × 100 = $30,000

ETF / Gold bar %: $30,000 ÷ (4,200 × 100) = +7.14%

Futures % (on margin): $30,000 ÷ M = +333.33%

Price down to $3,900 (Δ = −300)

$P/L: Δ × Q = −300 × 100 = −$30,000

ETF / Gold bar %: −$30,000 ÷ (4,200 × 100) = −7.14%

Futures % (on margin): −$30,000 ÷ M = −333.33%

Takeaway: With the same 100-oz exposure, dollar gains/losses are identical across vehicles. Futures look huge in % terms because you divide by a small margin deposit (leverage). That also means losses can be big.

Homework — Forecast: Gold by Nov 15

Question: What do you think the gold price (USD/oz) will be by Nov 15, and why?