On Thursday 30 September 2010, 4:57 SGT
Reuters - Gold surges to a record above $1,313 an ounce on Wednesday after a spate of lacklustre U.S. data fuelled expectations the Fed may move towards further quantitative easing to help the economy, undermining the dollar.
Following are key facts about the market and different ways to invest in the precious metal.
HOW DO I INVEST?
SPOT MARKET
Large buyers and institutional investors generally buy the metal from big banks.
London is the hub of the global spot gold market, with more than $20 billion in trades passing through London's clearing system each day. To avoid cost and security risks, bullion is not usually physically moved and deals are cleared through paper transfers.
Other significant markets for physical gold are India, China, the Middle East, Singapore, Turkey, Italy and the United States.
FUTURES MARKETS
Investors can also enter the market via futures exchanges, where people trade in contracts to buy or sell a particular commodity at a fixed price on a certain future date.
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 Jan. 9, 2008. Several other countries, including India, Dubai and Turkey, have also launched futures exchanges.
EXCHANGE-TRADED FUNDS
The wider media coverage of high gold prices has also attracted investments into exchange-traded funds (ETFs), which issue securities backed by physical metal and allow people to gain exposure to the underlying gold prices without taking delivery of the metal itself.
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. The ETF's holdings are equivalent to more than half global annual mine supply, and are worth some $54.9 billion 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
Retail investors can buy gold from metals traders selling bars and coins in specialist shops or on the Internet. They pay a small premium for investment products, of between 5-20 percent above spot price depending on the size of the product and the weight of demand.
KEY PRICE DRIVERS:
INVESTORS
Rising interest in commodities, including gold, from investment funds in recent years has been a major factor behind bullion's rally to historic highs. Gold's strong performance in recent years has attracted more players and increased inflows of money into the overall market.
U.S. DOLLAR
Despite the recent 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 the direction of gold.
Gold is a usually popular hedge against currency weakness. A weak U.S. currency also makes dollar-priced gold cheaper for holders of other currencies and vice versa.
This link sometimes breaks down in times of widespread financial 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 Lehman Brothers crisis.
OIL PRICES
Gold has historically had a correlation with crude oil prices, as the metal can be used as a hedge against oil-led inflation. Strength in crude prices can also boost interest in commodities as an asset class. More recently this correlation has weakened, with gold prices continuing to rise in the last two years as oil prices retreated from record peaks.
FISCAL AND POLITICAL TENSIONS
The precious metal is widely considered a "safe haven", bought in a flight to quality during uncertain times.
Financial market shocks, as seen in the aftermath of the collapse of Lehman Brothers and more recently in the case of burgeoning euro zone debt problems, tend to boost inflows to gold.
Major geopolitical events including bomb blasts, terror attacks and assassinations can also induce price rises.
CENTRAL BANK GOLD RESERVES
Central banks hold gold as part of their reserves. Buying or selling of the metal by the banks can influence prices.
On Aug. 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 400 tonnes, down from 500 tonnes in the second agreement, which expired in late September . Sales under the new pact have been low, however.
HEDGING
At the beginning of the 21st century, when gold prices were languishing around $300 an ounce, gold producers sold a part of their expected output with a promise to deliver the metal at a future date.
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 shrank.
The world's biggest gold miner, Barrick Gold, cut its gold hedges by about 3 million ounces to eliminate its entire hedgebook in the fourth quarter of last year.
SUPPLY/DEMAND
Supply and demand fundamentals generally do not play as big a role in determining gold prices as those of other commodities because of huge above-ground stocks, now estimated at around 160,000 tonnes -- more than 60 times annual mine production.
Gold is not "consumed" like copper or oil.
Peak buying seasons in major consuming countries such as India and China exert some influence on the market, but others factors such as the dollar and financial risk carry more weight.
(Compiled by Atul Prakash and Jan Harvey)
Super-rich investors buy gold by tonne
On Tuesday 5 October 2010, 2:38 SGT
By Laura MacInnis
Gold bars are pictured at the Ginza Tanaka store in Tokyo, October 23, 2009. REUTERS/Issei Kato/Files
Related Quotes
| Symbol | Price | Change |
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| C | 4.13 | +0.10 |
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GENEVA (Reuters) - The world's wealthiest people have responded to economic worries by buying gold by the bar -- and sometimes by the tonne -- and by moving assets out of the financial system, bankers catering to the very rich said on Monday.
Fears of a double-dip downturn have boosted the appetite for physical bullion as well as for mining company shares and exchange-traded funds, UBS executive Josef Stadler told the Reuters Global Private Banking Summit.
"They don't only buy ETFs or futures; they buy physical gold," said Stadler, who runs the Swiss bank's services for clients with assets of at least $50 million to invest.
UBS is recommending top-tier clients hold 7-10 percent of their assets in precious metals like gold, which is on course for its tenth consecutive yearly gain and traded at around $1,314.50 an ounce on Monday, near the record level reached last week.
Graphic on gold price http://r.reuters.com/nym54p
Reuters Insider http://link.reuters.com/wyj56p
"We had a clear example of a couple buying over a tonne of gold ... and carrying it to another place," Stadler said. At today's prices, that shipment would be worth about $42 million.
Julius Baer's chief investment officer for Asia is also recommending that wealthy investors park some of their assets in gold as a defensive stance following a string of lackluster U.S. data and amid concerns about currency weakness.
"I see gold as an insurance," Van Anantha-Nageswaran said. "I recommend 10 percent as minimum in portfolios and anything more than that to be used for trading purposes, to respond to short-term over-bought or over-sold signals."
ULTIMATE BUBBLE?
Billionaire financier George Soros, echoing comments from investment guru Warren Buffett, last month described gold as the "ultimate bubble" because it is costly to dig up and has no real value except its market price.
But a rising price for the precious metal has in itself generated more and more demand from investors looking for a way to hedge against a fresh recession. Gold bears no yield and is uncompetitive in an environment of rising interest rates.
The uneasy outlook for inflation, hard currencies and global growth has triggered a five-fold increase in a physical gold fund launched by Pictet one year ago, the Swiss private bank said.
UBS's Stadler said the precious metal has become a staple of investors' portfolios, despite questions about whether it makes for a smart long-term investment.
"If you talk to ultra-high net worth individuals, that level of uncertainty has never been higher in the last two, three, four years," he said. "If they ask me, 'Is inflation going up or are we entering a deflationary cycle?,' I don't know. But obviously nobody knows."
Anthony DeChellis, managing director of Credit Suisse 's Americas private banking unit, said at the Reuters summit in New York that clients are more interested in capitalizing on the rise in gold prices than using the precious metal as a safe-harbor investment.
"They're asking, 'If it's a bubble, how far can I ride that bubble,'" he said. "I cannot say we've seen a spike in gold interest, but there's an interest in the phenomenon of it."
Samir Raslan, Citigroup Inc's regional head for central, eastern and northern Europe, Africa and Turkey, said clients were not going overboard on gold.
"I wouldn't say that clients are over-investing. It's part of an asset allocation, but it's not something that they are deciding all of a sudden," he said.
And not all bankers are recommending exposure to gold.
Andreas Wolfer, head of private banking at UniCredit Group, attributed the run-up in the price of gold to frayed investor nerves after the 2008 financial crisis as well as concerns about sovereign debt in the euro zone.
"We have seen it but we have not overweighted it in our asset allocation," Wolfer told the Reuters summit in Geneva, which has emerged as a major trading hub for precious metals as well as other physical commodities.
"We strongly believe in an asset allocation having a clear and diversified portfolio, which sounds a bit boring but in the end it brings the best returns," Wolfer said.
(Additional reporting by Kevin Lim in Singapore and Joe Rauch in New York; Editing by Greg Mahlich and John Wallace)
Gold hits new record 
