Structured products usually hold a high minimum investment. For this reason, institutional investors dominate the market, along with gold market professionals in the case of forwards.

Forwards

Forward contracts are similar to futures. They are agreements to exchange an underlying asset - in this case, gold - at an agreed price, at a future date. They can be used to either manage risk or for speculative purposes.

Forwards and options trading on the over-the-counter (OTC) gold market differ significantly from futures or options that trade on one of the exchanges. Some of the key differences include:

• Counterparties will negotiate a forward contract (or OTC option) directly. The instrument is tailor-made, whereas futures contracts are standardised agreements that trade on an exchange.
• Although forward contracts offer the greater flexibility of a private agreement, they still pose a level of counterparty risk. Futures contracts carry the guarantee of the exchange on which they trade and are therefore risk free.
• The owner of a futures contract can sell to third parties at any point before maturity, making these instruments more liquid than forward contracts (whose obligations cannot be transferred).
   

Gold-linked bonds and structured notes

Gold-linked bonds are available from the world's largest bullion dealers and investment banks. These products provide investors with a combination of:

• exposure to gold price fluctuations
• a yield
• principal protection.

Structured notes tend to allocate part of the sum invested to purchasing put/call options. The balance goes into traditional fixed income products, such as the money market, to generate a yield. Depending on the structure, they can offer capital protection and a varying degree of participation in price fluctuations. Naturally the structure of the note will vary according to prevailing market conditions and personal investor preferences.