Gold investment has traditionally been the preserve of a minority of investors buying it on futures exchanges or through bullion dealers. There has been an unprecedented surge in investment demand. Everybody spoke about a gold rush last week when the yellow metal jumped back above $1,000 an ounce on last Monday ? not far off last spring?s record of $1,033 ? before slipping back on profit taking, raising its gains to 45% since October.

Gold usually moves inversely to the dollar, but it has gained around 13% this year, despite the greenback rising by around 10% against the euro. It has hit new records in a range of currencies, including pounds, euros and Canadian and Australian dollars.

During the first two months of 2009, gold London spot rose to $989.75 at the end of February, up by 14% from $869 in early January 2009. Over the year as a whole, the gold price averaged $872, up 25% from $695 in 2007.

During the current month, gold prices reached near the psychological Rs 16,000-mark, attracting more scrap sales, as consumers chose to cash in on this rally while imports continued to slacken to zero.

Global retail investment in quarter four of 2008 jumped by almost 400%, with retail investors in France becoming net buyers of gold for the first time in 25 years. Indian consumers at the retail level invested an all time high figure of Rs 88,056 crore on gold in the calendar year 2008, as opposed to Rs 71,761 crore in 2007 – an increase of 22.7% over the previous year and 71% of this value went towards the purchasing of gold jewellery and 29% was towards investment products like gold bars and coins.

?Gold will not lose its value. I think investors should keep themselves open to acquire gold at every dip. A year from now we could see these prices as a bargain,? Prakash Jain, a bullion trader said.

As shares on stock markets around the world lost an estimated $14 trillion in value, identifiable investment demand for gold, which incorporates exchange traded funds (ETFs) and bars and coins, was 64% higher in 2008 than in 2007, equivalent to an additional inflow of $15 billion. A major shift was witnessed in gold buying from traditional jewellery to coins and bars.

?The global recession and financial crisis will hit the entire investment basket. Gold will be affected in its dual role of currency as well as commodity. Commodities across the board have fallen by more than 50% from highs. Gold would be affected to a lesser extent due to its characteristic of being a safe investment and a hedge against inflation. The physical demand for jewellery would reduce due to the current global economic conditions. Reduction in oil prices would reduce investment surplus for oil exporting nations, this would drive away another important investment group from gold,? Bhargava Vaidya, a leading bullion analyst said.

Inflows into gold exchange traded funds (ETFs) have continued to surge this year. The gold holdings of the world?s largest gold trust, the New York-listed SPDR Gold Trust has absorbed 10% of worldwide annual mine output in the past seven weeks.

At this rate, 2009?s ETF purchases would be enough to surpass the tonnage of jewellery bought last year, replacing jewellery as the top source of demand. It is now the world?s seventh-largest gold bullion holder, behind a handful of central banks.

?Gold is expected to develop a stronger trading link to the currency world as risk premia on money stabilise. Then, as the US fiscal and trade deficits get un-manageable, the weaker dollar could then help gold break through $1200/oz,? Gnanasekar Thaigrajan, director, Commtrendz Research said.

Gold jewellery demand globally fell by 6% to reach at 538.9 tonne in quarter four of 2008 from 570.3 tonne in the same quarter of 2007.

Gold in the year 2008 outperformed most of the asset classes and has provided a 32% return on investment in rupee terms for the year 2008, according to latest report of the World Gold Council (WGC).

The compounded annualised returns provided by gold in the last five years ending 2008 have been 19.54%. (10 year figure is 13.63%), the WGC report said.