Gold has continued its recent price surge, with renewed interest by Central banks adding to the continued weakness of the U.S. dollar combining to push the oldest store of wealth to a series of new all time highs.

Clearing $1200/oz this week the metal has now climbed 20% in the last three months in U.S. dollar terms, having broken back through the $1000/oz mark in September. The surprise announcement in early November that the Reserve Bank of India had purchased 200 tonnes for $6.7 billion helped push the precious metal well clear of that mark setting it en route first $1100 and now beyond $1200/oz. Market belief that other central banks are also looking to increase their gold holdings, with Russia and China believed to be buying the metal domestically, has turned investor attention increasingly towards it.

That combines with the long term easing of the U.S. dollar, with the U.S. dollar index, the gauge of the American currency against a basket of global currencies, this week holding under 75 after peaking at a high of 89 in March. Otkrytie analyst, Andrey Litvin, says this has been the signal for investors.

“In fact, the drivers are the same as before. I mean, weakening Dollar, therefore, growing investment demand for gold makes gold go up. On top of that, many of the world’s Central Banks have announced intentions to diversify reserves and include more gold. This also was a signal for investors to go into gold.”

Vice President at Unicredit Securities, Marat Gabitov, adds that with the world awash with liquidity and economic stimulus funds, and record low interest rates in major economies – including the U.S. and Japan – gold is the first place investors are turning to, and that other commodities could follow.

“I think, the excess of liquidity has largely pushed gold prices higher. Extra money in the market made investors switch to gold, which is actually a so called swallow, the first commodity people tend to invest into and, I expect, other exchange commodities will follow.”

Gabitov adds that the recent announcements of gold purchases by central banks has broadened the investor appeal of the metal, which could push it towards $1300/oz by the end of this year.

“Actually, the latest increase in gold was due to the purchases of the Central Banks in India and China, with other countries catching up the trend. In fact, Central Banks turned into net buyers of gold from 2Q 2009, while they largely sold it for many years before. And the statistics from Commodity exchange-traded funds also shows investors didn’t believe in gold before. So, now I expect investors to come back to the market, pushing the gold price further up, may be even to $1300 per ounce by the end of 2009.”

While analysts see the surge reflecting a range of concerns about the value of the US dollar and the potential for a sharp jump in inflation when an economic rebound takes hold, there is little sign the of a sell off in the immediate future, despite warnings the long rally could be a bubble. Recent comments from the U.S. Federal reserve suggesting that U.S. rates would remain low for the foreseeable future, and comments by a range of economists about the risks of withdrawing stimulus funds from the economy too early, mean that there is little impetus to sell gold, and little obvious alternative. Otkrytie’s, Andrey Litvin adds the continued weakness in the U.S. economic outlook is a key factor which could push gold higher.

“I don’t expect any sharp turnarounds till we get any clear signs of recovery from the USA, with its interest rates growing and the whole monetary policy changing.”

Unicredit Securities, Gabitov, however believes that gains in gold could be capped over the coming year with other commodities likely to be the key beneficiaries.

“I think, in 2010 investors will switch to other exchange commodities.”

That sentiment has gained traction this week with key platinum and silver gaining sharply and copper pushing to a 14 month high.