With gold reaching yet another record high on Wednesday, gold pundits are betting the precious yellow metal could hit $1600 an ounce in the coming months.

But some sceptics have ignored the building gold fever and warned of a gold bubble, cautioning that market fundamentals point to a decline.

Gold climbed to within $2 of $1050 an ounce on Wednesday morning and just after lunchtime was trading $4.05 an ounce higher at $1046.20 from its last JSE close of $1042.15. This was after gaining a whopping $38.9 on Tuesday alone.

In one of its steepest one-day climbs since the 9/11 attacks in 2001, gold's Tuesday move was driven by concerns over dollar weakness and rumours that Gulf states may replace the greenback with a basket of currencies — a move that meant oil would no longer be priced in dollars.

"At the end of the day, a hefty dose of gold's stupendous intraday strength and the dollar's major swoon came from nothing but intrigue and innuendo," said Kitco analyst Jon Nadler.

Gold's wildest dream come true

"Swirling rumours that oil-producing nations were, or are, secretly plotting to dump the dollar as a settlement vehicle for oil payments, lit a giant bonfire under the gold trading pits, and almost gave the gold bugs a tangible manifestation of their wildest dream come true: the one involving a coffin and the dollar," Nadler added.

But markets remained bullish and gold continued to climb again on Wednesday.

While still driven by the slumping dollar, Wednesday's move higher was also bolstered by ongoing concerns over the strength of a global economic recovery and looming inflation.

This reinforced gold's appeal as a hedge.

"The breaking of the old record high price for gold today is no surprise to long-time critics of American and thus global financial policy," said James West in Tuesday's Midas Letter published by The Gold Report.

He said when anything — be it stock, bond, currency or commodity — reaches a new high, the impetus for selling into strength and taking profit off the table are enhanced dramatically.

Gold moved in huge swings

"With gold's new record high, there are plenty of holders of bullion who started acquiring it in the first years of the millennium who are now sitting on profit equivalent to three times the money," West warned.

As CNN pointed out, gold has moved in huge swings since the economy started to crack in 2007.

The price closed above $1000 for the first time on 14 March 2008, just before Bear Stearns was sold to JP Morgan, then fell to near $700 last November before rising again past $1000 last month.

It has only been in the last week that the precious metal has managed to hold above the key $1000 an ounce mark.

Now traders feel that gold could easily break above $1050 per troy ounce, and possibly even extend the rally to $1100/oz in the near-term.

Gold remains the best-performing asset

"The rally looks like it will continue," Commerzbank precious metals trader Michael Kempinski told Dow Jones Newswires.

"Investors are still on the biding side. When it comes down there's good buying," Kempinski added.

MoneyWeek's Dominic Frisby said gold remained the best-performing asset right now.

"Gold has made a daily close at all-time highs, but we need to see a couple of weekly closes above this level to confirm things," he said.

"As I've often said, I still expect gold to go a lot higher in the longer term — at the moment I expect $1400 by spring 2010. But it won't get there in a straight line, and for now, the positions taken by the futures traders on the Comex suggest a top. If stock markets do turn down, they will take gold and gold stocks with them," Frisby said.

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