Gold price rises over $1,000

LONDON (AP) - Gold prices rose above $1,000 per ounce on Tuesday to its highest since March 2008 - suggesting investors are wary of the U.S. dollar's weakness and expect international interest rates to remain low for some time.

The gold contract for October delivery traded up $9.69, or 1.0 percent, at $1,005.00 per troy ounce on the New York Mercantile Exchange. That is the highest since it hit a record of $1,033.90 on March 17 last year.

Gold is typically bought as an alternative to the dollar among safe-haven assets favored by investors seeking to preserve capital. So its rise often correlates to a drop in the value of the American currency.

That is what happened in spring of 2008, when worries about the financial crisis brewing in the U.S. helped drive gold to a record. Gold last went over $1,000 in February.

"It is mainly the reflection of the weakness of the dollar," said Julian Jessop, economist at Capital Economics.

The dollar fell to 92.32 yen on Tuesday from 93.05 yen the night before, while the euro strengthened to $1.4467 from $1.4332 as stock markets rose and investor sentiment improved.

Jessop noted, however, that gold was also being boosted by market expectations that global central banks would keep their interest rates low for some time to come. One disadvantage to holding gold is that no interest is earned - but rates on dollar-denominated assets such as government bonds have fallen sharply, lessening that disadvantage.

"Near-zero interest rates in many of the world's largest economies reduces the opportunity cost of holding gold," Jessop said.

The fact that 20 of the world's rich and developing nations promised over the weekend to keep in place their stimulus measures - which include both spending as well as low interest rates - reinforced the appeal of gold.

Jessop was not convinced gold could sustain such high prices for very long or push much higher, since consumers quickly start selling gold items to take advantage of stronger prices.

"This rally is sowing the seeds of its own destruction," he said.