Explainer: How investors buy gold and what drives the market
Bullion, which typically performs well when interest rates are low, has risen 52% this year
Gold surged above $4,000 an ounce to hit a record on Wednesday, driven by investors seeking safety from mounting economic and geopolitical uncertainty, alongside expectations of further interest rate cuts by the US Federal Reserve.
Bullion, which typically performs well when interest rates are low, has risen 52% this year, which in addition to geopolitical and economic uncertainty has been driven by central bank buying, monetary policy easing and a weaker dollar.
Here are the different ways to invest in gold:
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SPOT MARKET
Large buyers and institutional investors usually buy gold from big banks. Prices in the spot market are determined by real-time supply and demand dynamics.
London is the most influential hub for the spot gold market, largely because of the London Bullion Market Association. The association sets standards for gold trading and provides a framework for the over-the-counter market, facilitating trades among banks, dealers, and institutions.
China, India, the Middle East and the United States are other major gold trading centres.
FUTURES MARKET
Investors can also get exposure to gold via futures exchanges, where people buy or sell a particular commodity at a fixed price on a particular date in the future.
COMEX (Commodity Exchange Inc), part of the New York Mercantile Exchange, is the largest gold futures market in terms of trading volumes.
The Shanghai Futures Exchange, China's leading commodities exchange, also offers gold futures contracts. The Tokyo Commodity Exchange, popularly known as TOCOM, is another big player in the Asian gold market.
EXCHANGE-TRADED PRODUCTS
Exchange-traded products or exchange-traded funds issue securities backed by physical metal and allow people to gain exposure to gold prices without taking delivery of the metal itself. GOL/ETF
Exchange-traded funds have become a major category of investment demand for the precious metal.
Inflows into physically-backed gold exchange-traded funds are $64 billion so far this year, according to data from the World Gold Council, with a record $17.3 billion in September alone.
BARS AND COINS
Retail consumers can buy gold from metals traders selling bars and coins in a shop or online. Gold bars and coins are both effective means of investing in physical gold.
DRIVERS:
INVESTOR INTEREST AND MARKET SENTIMENT
Rising interest from investment funds in recent years has been a major factor behind bullion's price moves.
Sentiment driven by market trends, news, and global events can fuel speculative buying or selling of gold.
FOREIGN EXCHANGE RATES
Gold is a popular hedge against currency market volatility. It has traditionally moved in the opposite direction to the US dollar, since weakness in the US currency makes dollar-priced gold cheaper for holders of other currencies and vice versa.
MONETARY POLICY AND POLITICAL TENSIONS
The precious metal is widely considered a safe haven during times of uncertainty.
US President Donald Trump's trade tariffs and his imposition of additional duties on Chinese goods have sparked a global trade war, rattling currency markets and sparking fears of a spike in US inflation.
The trade war, which has roiled financial markets and raised recession fears, is escalating, with Trump hiking tariffs on Chinese imports to an effective rate of 145%, while China has raised tariffs on US goods from 84% to 125%.
The policy decisions of global central banks also influence gold's trajectory. Lower interest rates reduce the opportunity cost of holding gold since it pays no interest.
CENTRAL BANK GOLD RESERVES
Central banks hold gold in their reserves. Central bank demand has been robust in recent years because of macroeconomic and political uncertainty.
More central banks plan to add to their gold reserves within a year, despite high prices for the metal, the World Gold Council said in its annual survey in June.
Global gold demand, including over-the-counter trading, rose by 1% to a record high in 2024, the World Gold Council said, adding that central banks sped up buying in the fourth quarter.
China's gold holdings totalled 74.06 million fine troy ounces at the end of September, up from 74.02 million in the previous month, data from the People's Bank of China showed on Tuesday.
