Gold, the traditional safe haven, keeps on soaring

The gold rush shows no sign of abating, with the price soaring last week to over US$1220 ($1702) an ounce, more than 40 per cent up on the year. Traditionally a safe haven at times of uncertainty, the precious metal has moved higher as investors look for an alternative to the weak dollar.

Buyers are also moving into gold as a defence against inflation, which they believe could take off next year after western Governments have spent trillions propping up their economies.

If there is too much money in circulation, inflation is bound to come, according to one school of economic theory.

Fears that another country could follow Dubai and warn about the possibility of defaulting on its sovereign debt has also helped gold to power ahead.

Investors were also heartened by central banks buying gold to diversify reserves. India's purchase of about half the IMF's planned sales of 403.3 tonnes has reinforced views that gold has re-established itself as an investment asset. China and Sri Lanka are among other Asian nations that have recently raised the amount of the total reserves they hold in gold.

A fast-growing area is ordinary investors buying bars of gold. Figures from the World Gold Council show that the number of retail investors buying gold in its physical form, as opposed to investing in futures contracts or mining companies, rose by 11 per cent in the three months to September, compared with the previous three months.

Barclays Capital economists dismiss the idea that prices are over-inflated. They say demand is coming from investors and the official sector - a sign that demand will keep rising. But a few analysts warn that what goes up will eventually go down.

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