Factbox: How Investors Buy Gold and What Drives the Market – By Reuters

Gold reached a historic high, exceeding $2,600 per ounce, as the potential for additional U.S. interest rate cuts and global geopolitical uncertainty increased demand for the precious metal. So far this year, gold prices have surged over 26%, and market optimists are eyeing the possibility of reaching $3,000 per ounce.

Investors have various options when it comes to investing in gold:

Spot Market
Large buyers and institutional investors typically purchase gold from major banks, with prices in the spot market influenced by real-time supply and demand. London serves as the primary hub for gold trading, largely due to the London Bullion Market Association (LBMA), which establishes trading standards and facilitates over-the-counter (OTC) transactions among banks and institutions. Significant trading centers also exist in China, India, the Middle East, and the United States.

Futures Market
Another way to gain exposure to gold is through futures exchanges, where commodities are bought or sold at a predetermined price for a future date. The Commodity Exchange Inc. (COMEX), part of the New York Mercantile Exchange, is the largest market in terms of trading volume. Other notable exchanges include the Shanghai Futures Exchange in China and the Tokyo Commodity Exchange (TOCOM) in Japan.

Exchange-Traded Products
Exchange-Traded Products (ETPs) or Exchange-Traded Funds (ETFs) issue securities that are backed by physical gold, allowing investors to speculate on gold prices without taking actual delivery of the metal. ETFs have gained popularity among investors seeking exposure to gold. Recent data indicated that globally, physically-backed gold ETFs experienced a fourth consecutive month of inflows as funds in North America and Europe increased their holdings.

Bars and Coins
Retail consumers can purchase gold in the form of bars and coins from assorted metals traders, either in physical outlets or online. Both options are viable methods for investing in physical gold.

Market Influences
Rising interest from investment funds has played a significant role in driving gold prices, alongside market sentiment shaped by trends, news, and global events that can lead to speculation in gold trading.

Foreign Exchange Dynamics
Gold is commonly seen as a hedge against currency volatility, historically moving inversely to the U.S. dollar. A weakened dollar can make gold cheaper for international investors, while a strong dollar may increase gold’s price for those holding other currencies.

Monetary Policies and Geopolitical Factors
Gold is widely regarded as a "safe haven" investment during times of uncertainty. Major geopolitical events, such as conflicts in the Middle East and Europe, have heightened global investor concerns, thereby enhancing gold’s attractiveness. Additionally, monetary policies from central banks, especially interest rate decisions, can heavily influence gold prices. A recent rally was sparked when the U.S. Federal Reserve initiated its easing cycle with an unexpected half-percentage-point rate cut.

Central Bank Reserves
Central banks maintain gold as part of their reserves, with their buying or selling activities impacting market prices. Analysts note that demand from central banks has remained robust amid ongoing macroeconomic and political turmoil. According to a recent annual survey, many central banks intend to continue increasing their gold reserves, even in light of the current high prices.