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)