Gold prices stay high as investors flock to safe haven

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The metal was $1,248 this week amid the weakness of the euro and pound against the dollar as European nations face huge national deficits. Sterling has slipped to 1.45 against the dollar, while a weakened euro fell to a new 14-month low against the greenback below 1.25.

European leaders agreed a 750 billion (£642 billion) bailout package last weekend but markets have been unconvinced at the single currency block's stability.

Experts believe the efforts of many countries to tackle the dire state of their public finances will impact growth, putting pressure on exchange rates.

Numis Securities analyst Andy Davidson said: "Long-term fundamentals are supportive, with the repeated and ever-larger government bail-out programmes adding huge inflationary pressure to the major currencies over the long-term."

Mike Lenhoff, chief strategist at Brewin Dolphin, said the price rise reflected gold's "all-weather" inflation hedge although a weaker exchange rate would eventually be good news for economic recoveries in the eurozone and UK.

Capital Economics' Julian Jessop has forecast that gold will fall back below $1,000 an ounce by the end of the year unless a major economy defaults.

He said: "The EU rescue package should be enough to avoid an imminent financial meltdown in the eurozone. But the required fiscal tightening will undermine the economic recovery in the region, which should keep the euro weak and dollar strong.

"With global growth and commodity prices likely to fall over the coming year as policy stimulus fades, gold should lose the support that it has gained as an inflation hedge."