Market worries cause gold to peak at $1,600 an oz.

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Traders expect the price of gold bullion to rise further this week.

The gold price has reached record highs, peaking at more than $1,600 an ounce in Europe as investors worried by the euro zone debt crisis and the threat of a U.S. default bought into the metal.

Spot gold rose has risen as high as $1,600.40 an ounce and was up 0.4% at $1,598.76 an ounce this morning. Gold rose more than 3% for a second straight week to last Friday, something that has not occurred since February 2009.

Fears in the U.S. and Europe mean the gold price will likely rise even higher this week. The Telegraph has today released a survey of 27 traders, investors and analysts undertaken by Bloomberg last Friday. It shows that 89% expected the price of bullion to rise by the end of the week. One of the respondents thought gold would fall and two were neutral.

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Historically gold prices are weak in the summer months but this trend has been broken this year, and will be followed by the Indian buying season, which will increase demand substantially. Conversely, there may be a risk of demand destruction, where buyers shy away because of the high prices.

If the U.S. manage to agree on an increase on the debt ceiling, then it is likely that gold will ease. However credit analysts have warned that the country is edging closer to a rating downgrade. If the U.S. fails to agree on raising the $14.3trillion debt ceiling by the August 2 deadline then the country’s credit rating will slump and the dollar will to plummet. In such a case gold will go through the roof.

As gold becomes a more attractive commodity, the World Gold Council (WGC) last week noted that central banks had bought more gold in the first half of this year than they did in the whole of 2010. Mexico has led the charge, buying more than $4bn of gold in early May. Between March and June, the gold price rose 4.6% – its 10th consecutive quarterly rise.

"Investors are increasingly looking to gold as a safe haven as the U.S. dollar, pound sterling and the euro continue to devalue against stronger currencies such as those of Canada, Australia, Norway and Switzerland," said Angelos Damaskos, chief executive of Sector Investment Managers.

Independent analysis commissioned by the WGC and released last week found that gold performs relatively well compared to other assets in a high-inflation scenario as well as in a deflationary period.

The report stated that due to its lack of correlation with other assets gold has a useful part to play in stabilising the value of a long-run portfolio even if a modest negative real annual return is assumed.

Other commodities have appeared lacklustre, with industrial metals like nickel and aluminium easing in price.

Other precious metals have followed suit in price rises, with silver rising to above $40 an ounce for the first time since early May. It has rallied more than 15% in the last two weeks, however, as gold prices have risen.

"Towards the end of the summer, an expected pick-up in interest in silver could take the gold:silver ratio lower for the rest of 2011," said a report by BNP Paribas last Friday. "In 2012, the silver price may in turn weaken as the outlook for gold turns more negative."

Silver peaked at $40.15 an ounce and was later bid at $39.95 an ounce against $39.27. Spot platinum was bid at $1,759.50 an ounce versus $1,748, while spot palladium was at $782.72 an ounce against $771.

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