Gold price rises on war fears

The gold price reached $319.60 an ounce on Wednesday, its highest price since it hit $338 in October 1999, as investors sought a safe-haven for their money.

"You've got to look at the political situation in Kashmir with India and Pakistan seemingly preparing for war. This is now the key driver pushing gold prices higher," said TheBullionDesk.com analyst, Ross Norman.

India's Prime Minister Atal Behari Vajpayee fuelled gold buying when he told soldiers confronting Pakistani forces in Kashmir that the time had come for a "decisive battle".

The two countries, with over a million troops in the region, have exchanged fire since Kashmiri separatists attacked an Indian army camp last Tuesday killing more than 30 people.

Ironically, India, the world's largest consumer of gold, will be especially hard hit as the rising price has been exacerbated by the rupee's sliding value against the dollar.

Still rising

Britain's planned withdrawal of some embassy staff from Pakistan in response to security threats, and the temporary closure of the Brooklyn Bridge in New York over fears of a terrorist attack, also unnerved traders.

"India-Pakistan is a factor, the threat of more terrorist attacks in the US is a factor. These are things that are moving investors further into gold as they lose faith in the stock markets," said Peter Hillyard, senior manager at ANZ Investment Bank in London.

"Gold will go up to $325 - that's only $7 away now, but ultimately I think $340 is a very real possibility," he said.

The weakening US dollar had earlier been key to gold's rise.

It hit seven-month lows against the euro and five-month lows against the yen this week, making the metal cheaper to investors outside the US.

Gold has risen 14% since January, breaking through $300 an ounce at the end of March when Israeli forces reoccupied the West Bank following a series of Palestinian suicide bombings in Israel.