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What drives the gold market and how investors buy it?

Gold soared over the $4,600 per ounce mark in a single day on Monday. A resurgence of geopolitical tensions as well as expectations of a looser U.S.monetary policy contributed to bullion reaching its first record peak of 2026 following a series of all-time records last year.

There are several ways to invest in gold:

SPOT - MARKET

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

London is the hub of the spot gold markets. The London Bullion Market Association sets standards for gold trading, while providing a framework to facilitate over-the counter trades between banks, dealers and institutions.

China, India and the Middle East are also major gold trading centres.

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 is part of the?New York Mercantile Exchange, and it's the biggest gold futures exchange in terms of trading volume.

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

EXCHANGE TRADED PRODUCTS

Exchange-traded product or exchange-traded fund issue securities that are backed by actual metal. This allows people to get exposure to the gold price without having to take delivery of?the metal.

According to data from the World Gold Council, 2025 will be the year that global gold ETFs experience their strongest ever inflows, with North American funds leading the way. Inflows jumped to $89 billion annually.

BAR?AND COINS

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

What drives the market?

Investor Interest and Market Sentiment

The rising interest of investment funds has been one of the major factors behind the price movements in bullion. News, market trends and world events have all contributed to speculative gold buying or selling.

FOREIGN EXCHANGE RATE

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

MONETARY POLICY & POLITICAL TENSE

Precious metals are widely regarded as a safe haven in times of uncertainty.

Donald Trump's trade tariffs, which have been in place for the past year, have sparked global trade wars and rattled currency markets. Trump's capture and assassination of Venezuelan President Nicolas Maduro, along with his aggressive statements about acquiring Greenland? are adding to the market volatility.

The gold price is also affected by the global central banks' policies. Gold is less expensive to hold when interest rates are lower, because it does not pay interest.

CENTRAL BANK GLOBAL GOLD RESERVES

The central banks have a large amount of?gold as reserves. Demand from the sector has increased in recent years due to macroeconomic and political uncertainty.

In its annual survey, the World Gold Council reported in June that despite high gold prices, more central banks planned to increase their gold reserves in a year.

World Gold Council data shows that net central bank purchases for November totaled 45 metric tonnes, bringing the total amount of gold purchased by emerging market central banks in the first 11 months to 297 tonnes.

China continued to add gold to its reserves. Its holdings reached 74.15 millions troy ounces by the end of the month, up from 74.12 in the month before. This was the 14th consecutive month that China has been on a buying spree. (Compiled and edited by Bangalore Commodities and Energy Team)

(source: Reuters)