How to invest in gold and key price drivers

Gold surged to a record above USD 1,500 an ounce on Wednesday as dollar weakness and a rise in oil prices added to fear-driven buying on the back of uncertainty over euro zone stability and US growth.

Following are key facts about the market and different ways to invest in the precious metal.

London is the hub of the global spot gold market, with more than USD 26 billion in trades passing through the city'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.

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.

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 some $59 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.

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 last year 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.