Production costs have climbed in key countries like South Africa

Gold hit $502.70 in London, its highest level since February 1983.

Other commodity prices also have been climbing, and platinum topped the $1,000-an-ounce level.

Demand from jewellery makers is helping to boost prices, as is speculation that some central banks want to cut US dollar holdings and boost gold stores.

After hitting the high, gold fell back and stood at $496.40 an ounce in afternoon trading in London.

Ideal conditions

"The expectations of inflation in the coming year are very high," said Albert Cheng of the World Gold Council.

Check the latest gold price

"People are looking for an alternative investment" to products such as US dollar-based bonds, he said.

A number of factors have come together to create what analysts are calling a commodities boom.

As well as the worries that inflation will erode the value of bonds and shares, strong demand from Asian economies for metals has been squeezing supply at a time when producers are finding it difficult to boost output.

This time of year also normally sees demand for gold pick up as jewellers prepare for the Christmas holiday period and Indian wedding season, analysts said.

Polished performance

Prices are likely to climb - even though there may be some short-term profit-taking - because $500 is an important psychological level which acts as a deterrent until it is broken through.

Gold is the only monetary asset class which will protect investors Juerg Kiener, hedge fund manager

"Once they are comfortable with this level, it will not deter people from buying jewellery," said the World Gold Council's Mr Cheng.

"People tend to buy more when the price of gold is actually upward," he said.

The gold price hit a record of $873 an ounce in January 1980, and hit $502 for one day in December 1987.

Since then, it has recovered from lows of about $250 an ounce in 2001 and has surged almost 15% this year alone.

Platinum prices have also climbed in recent months, hitting their highest levels in 25 years, driven by strong jewellery demand and the metal's important role in car exhausts.

Buying drive

A number of factors have combined to create a new gold boom

Many investors are expecting gold prices to go higher as central banks start increasing holdings.

According to hedge fund manager Juerg Kiener, it is only a matter of time before Asian central banks start selling US dollars. Russia has already said that it is considering boosting its gold stores.

He said that concerns about the size of budget deficits in some of the world's biggest economies, as well as fears about higher inflation and slower growth, had created a good environment for buying precious metals.

"Gold is the only monetary asset class which will protect investors," Mr Keiner said.