London - Gold prices surged to a record $1 578.50 an ounce on Wednesday as fears grew over the eurozone debt crisis, and after minutes to the Federal Reserve's June meeting suggested some members were pondering the need for additional monetary easing.
Here are key facts about the market and different ways to invest in the precious metal.
How do I invest?
Other significant markets for physical gold are India, China, the Middle East, Singapore, Turkey, Italy and the United States.
The COMEX division of the New York Mercantile Exchange is the world's largest gold futures market in terms of trading volume. The Tokyo Commodity exchange, popularly known as TOCOM, is the most important futures market in Asia.
China launched its first gold futures contract on January 9 2008. Several other countries, including India, Dubai and Turkey, have also launched futures exchanges.
Gold held in New York's SPDR Gold Trust, the world's largest gold-backed ETF, rose to a record high of 1 320.436 tonnes in June 2010. The ETF's holdings are equivalent to nearly half of global annual mine supply and are worth about $62bn at today's prices.
Other gold ETFs include iShares COMEX Gold Trust , ETF Securities' Gold Bullion Securities and ETFS Physical Gold, and Zurich Cantonal Bank's Physical Gold.
Key price drivers
This link sometimes breaks down in times of widespread market stress, however, as both gold and the dollar benefit from risk aversion. Their ratio turned positive in late 2008 and early 2009 after the crisis following the Lehman Brothers failure.
Despite another drop in the usual strong correlation between gold and the euro-dollar exchange rate, the currency market still plays a major long-term role in setting gold's direction.
Analysts say gold's strong performance in 2010 was largely driven by concerns over the stability of all currencies, though primarily the dollar, as major economies have moved to dampen strength in their currencies to safeguard exports.
Financial market uncertainty, as currently seen in the case of burgeoning debt problems for Greece and other eurozone countries, tends to boost inflows to gold.
Major geopolitical events, such as the recent outbreak of unrest across the Middle East and North Africa, can also induce price rises.
On August 7 2009, a group of 19 European central banks agreed to renew a pact to limit gold sales, originally signed in 1999 and renewed for a further five years in 2004.
Annual sales under the pact are limited to 400t, down from 500t in the second agreement, which expired in late September 2009. Sales under the new pact have been low, however.
More recently central banks, chiefly in Asia, have shown a tendency to add to their gold reserves, with Mexico and Russia some of the most recent countries to purchase bullion. This has also provided a major support to prices.
But when prices started rising, they suffered losses and there was a move to buy back their hedging positions to fully gain from higher market prices, a practice known as de-hedging.
Significant producer de-hedging can boost market sentiment and support gold prices. However, the rate of de-hedging has slowed markedly in recent years as the outstanding global hedge book has shrunk.
The world's biggest gold miner, Barrick Gold, cut its gold hedges by about 3 million oz to eliminate its entire hedgebook in the fourth quarter of 2009, while AngloGold Ashanti, also a major producer, closed its hedgebook last year.
Gold is not consumed in the same way as copper or oil.
Peak buying seasons in major consuming countries such as India and China exert some influence on the market, but other factors such as the dollar and financial risk carry more weight.
Here are key facts about the market and different ways to invest in the precious metal.
How do I invest?
- Spot markets
Other significant markets for physical gold are India, China, the Middle East, Singapore, Turkey, Italy and the United States.
- Futures markets
The COMEX division of the New York Mercantile Exchange is the world's largest gold futures market in terms of trading volume. The Tokyo Commodity exchange, popularly known as TOCOM, is the most important futures market in Asia.
China launched its first gold futures contract on January 9 2008. Several other countries, including India, Dubai and Turkey, have also launched futures exchanges.
- Exchange-traded funds
Gold held in New York's SPDR Gold Trust, the world's largest gold-backed ETF, rose to a record high of 1 320.436 tonnes in June 2010. The ETF's holdings are equivalent to nearly half of global annual mine supply and are worth about $62bn at today's prices.
Other gold ETFs include iShares COMEX Gold Trust , ETF Securities' Gold Bullion Securities and ETFS Physical Gold, and Zurich Cantonal Bank's Physical Gold.
- Bars and coins
Key price drivers
- Investors
- Foreign exchange rates
This link sometimes breaks down in times of widespread market stress, however, as both gold and the dollar benefit from risk aversion. Their ratio turned positive in late 2008 and early 2009 after the crisis following the Lehman Brothers failure.
Despite another drop in the usual strong correlation between gold and the euro-dollar exchange rate, the currency market still plays a major long-term role in setting gold's direction.
Analysts say gold's strong performance in 2010 was largely driven by concerns over the stability of all currencies, though primarily the dollar, as major economies have moved to dampen strength in their currencies to safeguard exports.
- Oil prices
- Fiscal and political tensions
Financial market uncertainty, as currently seen in the case of burgeoning debt problems for Greece and other eurozone countries, tends to boost inflows to gold.
Major geopolitical events, such as the recent outbreak of unrest across the Middle East and North Africa, can also induce price rises.
- Central bank gold reserves
On August 7 2009, a group of 19 European central banks agreed to renew a pact to limit gold sales, originally signed in 1999 and renewed for a further five years in 2004.
Annual sales under the pact are limited to 400t, down from 500t in the second agreement, which expired in late September 2009. Sales under the new pact have been low, however.
More recently central banks, chiefly in Asia, have shown a tendency to add to their gold reserves, with Mexico and Russia some of the most recent countries to purchase bullion. This has also provided a major support to prices.
- Hedging
But when prices started rising, they suffered losses and there was a move to buy back their hedging positions to fully gain from higher market prices, a practice known as de-hedging.
Significant producer de-hedging can boost market sentiment and support gold prices. However, the rate of de-hedging has slowed markedly in recent years as the outstanding global hedge book has shrunk.
The world's biggest gold miner, Barrick Gold, cut its gold hedges by about 3 million oz to eliminate its entire hedgebook in the fourth quarter of 2009, while AngloGold Ashanti, also a major producer, closed its hedgebook last year.
- Supply/demand
Gold is not consumed in the same way as copper or oil.
Peak buying seasons in major consuming countries such as India and China exert some influence on the market, but other factors such as the dollar and financial risk carry more weight.