Gold price rises over US$1,000

When the economy is sluggish, people often turn to commodities such as gold as a safe haven. On Tuesday, the price of gold powered through the 1,000 US dollar psychological benchmark, after a sudden price spike in recent trading days. This suggests investors are wary of the greenback's weakness and expect international interest rates to remain low.

The gold contract for December delivery traded 0.7 percent higher, at just over 1-thousand dollars per troy ounce on the New York Mercantile Exchange. It had gone almost as high as 1,010 dollars, the highest since it hit a record of nearly 1,034 dollars on March the 17th last year.

The precious metal gained as the dollar sank to its lowest level against the euro this year. The euro strengthened to just under 1.45 US dollars on Tuesday.

Analysts say the price surge has been fueled by worries about weaker US dollars, and uncertainties in the stock market. International funds are diverting to gold as a safer alternative, which has propelled the rapid price spike.

Gold is also being boosted by market expectations that global central banks would keep their interest rates low for some time. The fact that 20 of the world's rich and developing nations promised over the weekend to keep in place their stimulus measures - which include both spending as well as low interest rates - reinforced the appeal of gold.

Zhang Yingying, Gold Analyst of Galaxy Futures said "Firstly, there are uncertainties in the economic recovery of the US and European economies. Secondly, central banks are showing no sign of interest rate hikes. Thirdly, the US dollar is low and there are worries about inflation. And finally the market is debating about the status of the US dollar to serve as an international reserve currency. These four factors have kept the price of gold at a high level. The accelerating pace of the US dollar's weakness and funds are major forces that have pushed gold above 1-thousand US dollars."

Analysts also noted that as of September, the two largest gold consumption countries of China and India, have entered their peak season for the demand of the precious metal. It is another factor behind the bull run of gold.

However, some analysts see no reason to buy into the gold rally.

Robert Brusca, Chief Economist of Opinion Economics said "There may be some feelings that there is some kind of disaster scenario festering, but I don't share that view, and I don't share the view that gold is in a bull market right now."

Analysts are not upbeat that gold will be able to sustain such high prices for very long, since consumers often start selling gold items quickly to take advantage of stronger prices. Some say bonds are a safer alternative investment right now, because it's difficult to tell how fast the economy will grow.