A number of other factors, such as demand from jewellery makers, are also contributing to create what some investors are calling a commodity boom.

Gold rose as far as $508.50 an ounce, its best since 1983, before giving up some gains to trade at $506.66.

Platinum prices are near 26-year highs, while silver set an 18-year best.

Commodity prices do not seem to be running out of steam and analysts are predicting more gains in coming months.

'Significant drive'

The problem facing investors is that once an asset class starts to climb, many of them are keen to tap into that growth and start buying, pushing prices up further.

Some analysts are forecasting that gold could go as high as $525 an ounce next year, with other metals also set to climb.

People are very happy to be jumping on the bandwagon and basically riding the thing up Darren Heathcote, NM Rothschild Check the latest gold price

At the same time, other investments are looking less attractive as the Japanese yen weakens and inflation fears intensify in the US.

The concern is that the value of bonds and shares will be eroded.

"The overall feel in the market at the moment is of diversification away from the US dollar and other currencies into gold and also from shares into gold," said a trader in Singapore.

The yen fell to a 32-month low against the US dollar in Japan on Monday, prompting an increase in demand for gold futures on the Tokyo market.

"There was a significant drive in Japan in recent weeks," said Darren Heathcote of NM Rothschild. "People are very happy to be jumping on the bandwagon and basically riding the thing up."

Shining examples

Buying by central banks would take a lot of gold out of the market

Also putting a squeeze on gold prices is the traditional year-end pick-up in demand, as jewellers prepare for the Christmas holiday period and Indian wedding season.

There is also speculation that Asian central banks will cut their US dollar holdings - which have been boosted by export sales - and increase gold stocks.

Russia has also mentioned that it is interested in doubling its gold holdings.

The gold price hit a record of $873 an ounce in January 1980, and hit $502 for one day in December 1987.

Since then, it has recovered from lows of about $250 an ounce in 2001 and has surged 16% this year alone.