GOLD has soared to its highest level since 1988 in recent weeks, sparking fresh speculation about how long the rally can continue.

The precious metal has surged 86% in dollar terms from a low of $253 in 1999 to $470 now, compared with a fall of 8% in the MSCI World share index, as investors have sought a haven from global uncertainty and rising inflation. The bull market is the longest since the “stagflation” of the 1970s. The big question is: can it continue? Many analysts think that it can, although there could be a setback over the next few months as traders lock in some of their recent profits.

Speculators, including hedge funds, have been piling into the metal, betting in record numbers that the price of gold will rise.

But even though a short-term setback is expected, many analysts believe that a price of $500 an ounce is now within sight. Any dip along the way could therefore be a good buying opportunity.

Last week at the gold industry’s annual get-together, the Denver Gold Forum, the mood was markedly upbeat. Pierre Lassonde, president of Newmont Mining, the world’s largest gold producer, told participants he was expecting the price to hit $525 by early next year — a 24-year high.

Gold producers have a vested interest in being bullish, of course, but many independent analysts are also predicting further gains.

Tony Lesiak at UBS, an investment bank, said: “In the short term, we suspect that the current run in gold is coming to an end. But we expect it to hit $500 an ounce at some time in the next 12 months.”

Investors have been buying gold as a protection against inflation. When prices rise, the value of paper money falls, but gold is a store of value.

In the 1970s, a climate of high and rising inflation sent the gold price soaring more than 2,000%, with the metal reaching its highest ever level of $850 an ounce in January 1980, or $2,550 in real terms — well ahead of current levels.

Jill Leyland of the World Gold Council, said: “There are fears that inflation may pick up because of higher oil prices. Gold is being used an a hedge against higher inflation.”

In Britain, inflation is running at 2.4%, its highest level since 1997. And in America, the Federal Reserve, the central bank, is having to raise rates to prevent prices rising too fast.

Not everyone agrees that this will help to underpin the gold price over the longer term. Alan Williamson of HSBC said: “The idea that higher oil prices will prove inflationary, and that gold is a hedge against inflation, may have been valid in the 1970s but is hardly relevant now. Inflation is still at relatively low levels.”

But even if inflation does not pick up, there are other factors that could support the price.

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