LONDON — Gold powered to a record high on Wednesday, topping the previous day's gains, as U.S. dollar weakness and mounting worries about potential inflation enticed more investors to the precious metal.

Spot gold hit a historic $1,048.20 (U.S.) an ounce and was at $1,046.60 an ounce by 1003 GMT, versus $1,040.85 quoted late in New York on Tuesday. U.S. December gold futures hit a new peak of $1,049.70 an ounce.

Other precious metals benefited from bullion's rally with palladium hitting $313.50 an ounce, its highest since August 2008 while palladium rose to a two-week high and silver climbed to a three-week high.

“The demand is coming almost exclusively from the investment side,” said Eugen Weinberg, analyst at Commerzbank. “Gold reaching an all-time high is attracting new investment. his momentum can take us to even $1,100 an ounce,” he said.

“As long as we don't see a sustainable rally in the dollar, I don't think it (the rise) will stop,” Mr. Weinberg said.

The U.S. dollar extended loses against commodity currencies, hitting the lowest in a year or more against Canadian, New Zealand, and Australian dollars.

Bullion has gained nearly 20 per cent this year, helped by dollar weakness and on the back of escalating inflation worries after the central banks and governments across the globe poured billions of dollars into the financial system to revive growth.

However, current prices are still sharply below the inflation adjusted record pinpointed by analysts. Metals consultancy GFMS put that figure as high as $2,079 an ounce.

Gold's rally has boosted flows into exchange traded funds (ETFs). The world's largest gold-backed ETF, the SPDR Gold Trust , said its holdings stood at 1,100.514 tonnes as of Oct. 6, up 0.2 per cent or 2.441 tonnes from the previous business day for the third consecutive day of increase.

“The surge in demand for gold does not appear to be short term in nature as we have been seeing very rapid growth of investor holdings of gold through our ETCs for over a year now,” said Nicholas Brooks, head of research and investment strategy at ETF Securities.

ETF Securities' said its total gold holdings now stand at 8.3 million ounces, up 110 per cent over the past two years.

However, the high prices are set to curb demand for physical gold, traders say, potentially weakening the fundamental case for gold's sustainable rally.

“The ETFs are attracting some inflows but those by no means can compensate for the falling physical demand from the jewellery side,” Mr. Weinberg said. “In India, I think despite the festive season there, demand will be very weak given current prices,” he said.

Among other precious metals, silver rose to $17.49 an ounce, its highest since September 17, and was last at $17.43 an ounce versus $17.32 an ounce last quoted in New York on Tuesday.

Platinum climbed to $1,338 an ounce, its highest since September 23 and was last at $1,332 an ounce from $1,313.50 an ounce.