Latest News

What drives the gold market and how investors buy it?

As rising expectations of a

U.S. Federal Reserve

The yellow metal's demand was boosted by the interest rate reduction this month.

Bullion prices reached a record-high of $3,508.50 an ounce this year, marking a gain of almost 33%.

Gold that does not yield a return tends to do well in low interest rate environments.

Here are some ways you can invest in gold.

SPOT MARKET

Big banks are usually the gold buyers for large investors and buyers. The spot market is determined by the real-time dynamics of supply and demand.

London has the largest influence on the spot gold markets, thanks to the London Bullion Market Association. The association establishes standards for gold trading, provides a framework for over-the counter trades, and facilitates transactions between banks, dealers and institutions.

China, India, Middle East, and the United States, are also major gold trading centers.

Futures Market

Futures exchanges are another way for investors to get exposed to gold. They allow them buy or sell commodities at a set price, on a specific date in the future.

COMEX, part of the New York Mercantile Exchange (NYMEX), is the world's largest gold futures exchange in terms of volume of trading.

Shanghai Futures Exchange (China's largest commodities exchange) also offers gold contracts. TOCOM (the Tokyo Commodity Exchange) is a major player in the Asian market for gold.

Exchange Traded Products

Exchange-traded product or exchange-traded fund issue securities backed with physical metal, allowing people to gain exposure without having to take delivery of the metal themselves.

Exchange-traded fund demand has become the largest category for precious metal investment.

The World Gold Council reported that physical gold exchange traded funds saw a modest inflow of $3.4billion in 2024. This was their first net inflow in four years despite their holdings falling by 6.8 tons.

BARS AND COINS

Metals traders can sell bars and coins to retail consumers in shops or online. Both gold bars and coins can be used to invest in physical gold.

DRIVERS:

Investor Interest and Market Sentiment

The price of bullion has been affected by the rising interest in investment funds over recent years.

Sentiment fueled by news, global events, and market trends can drive speculative gold buying or selling.

FOREIGN CHANGE RATE

Gold is an excellent hedge against the volatility of currency markets. Gold has historically moved in the opposite direction of the U.S. Dollar, as a weaker dollar makes gold priced in dollars cheaper for holders other currencies.

MONETARY POLICY & POLITICAL TENSION

In times of uncertainty, precious metals are widely regarded as a "safe-haven".

Trump's trade tariff threats and the imposition of additional duties against Chinese goods have sparked fears of an international trade war. They also rattled currency markets, and sparked fears of a spike of inflation in the United States.

The global trade conflict that has caused financial market turmoil and recession fears is intensifying. Trump raised tariffs on Chinese goods to an effective rate 145% while China increased tariffs on U.S. products from 84% up to 125%.

Gold's direction is also affected by the policy decisions made by global central banks. Gold is less expensive to hold when interest rates are lower, since it does not pay interest.

CENTRAL BANK GLOBAL GOLD RESERVES

Gold is held by central banks as reserves. The demand for central bank gold has been high in recent years due to macroeconomic and political uncertainties.

In its annual survey, conducted by the World Gold Council in June, it was revealed that more central banks intend to increase their gold reserves in the next year, despite the high price of the metal.

The World Gold Council reported that global gold demand including over-the counter trading rose by 1% in 2024 to reach a new record. Central banks also increased their purchases in the fourth quarter. (Compiled and edited by Bangalore Commodities and Energy Team)

(source: Reuters)