Gold hits record over $1,000, oil reached $111

London: Gold hit a record high above $1,000 an ounce on Thursday and oil reached an all-time peak at $111 a barrel as a historically weak dollar and falling equities triggered a flight to commodity markets.

Soft commodities such as cocoa and coffee also rallied and industrial metals rose but were restrained by fears of a global economic slowdown.

The dollar sank to a 12-year low, and an all-time low versus the euro, while share markets lost ground as the investors fretted over the health of the US economy and global financial sector.

US gold futures rallied to a $1,000 an ounce while spot gold jumped to a fresh peak of $997.50 an ounce and was at 997.10 an ounce by 1231 GMT, up more than 2 percent from $981.90/982.70 an ounce in New York on Wednesday.

"The environment of other asset classes has made commodities very attractive," said Michael Lewis, global head of commodities at Deutsche Bank.

"They look very much like a safe-haven, because if you look at other asset classes there is a lot of risk associated with equities, carry trades and so on."

Fears of a recession and expectations of aggressive rate cuts from the US Federal Reserve to help shield the US economy is piling pressure on dollar, while also boosting gold and oil as alternative investments.

A falling dollar makes dollar-denominated commodities cheaper for investors in other currencies. It has helped bullion gain 19 percent and oil over 15 percent so far this year.

"People have realised that the central banks are going to have to ignore the inflationary risks to rescue the banking system," said Sean Corrigan, chief investment strategist at Diapason Commodities.

Defying fundamentals

US crude oil futures climbed to a record high of $110.70 a barrel as the weak dollar offset news of an increase in US crude inventories.

"We're looking at the US dollar, we're looking at speculation, we're looking at geopolitical. Those three things tying together are defying fundamentals," said Peter McGuire, managing director of Commodity Warrants Australia.

The impact of the weakening dollar hit soft commodities too.

London robusta coffee futures rose on speculative buying, with London May arabica futures up $39 or 1.47 percent to $2,691 a tonne while ICE cocoa futures ICE May up $96 or 3.5 percent to $2,872 per tonne.

Wheat slid about 1 percent after jumping on Wednesday amid concerns over tight global supplies.

In the long-run, analysts expect prices to be supported.

"Gold and agricultural commodities are the two we think should be bullet-proof to the problems in the US economy and declining equity markets," Lewis at Deutsche Bank said.

Of all commodities, industrial metals looked to be the weakest link. Copper for three-months delivery on the London Metal Exchange was flat at $8,400 per tonne, after falling as low as $8,315 per tonne earlier in the day.

"They're the ones you would be least likely to fancy because their underlying physical demand will possibly be in trouble for a year or so while we work out the western recession and see whether there's any knock-on on developing markets," Corrigan said.

Copper has risen 23 percent since the beginning of the year, driven largely by speculative money, while aluminium jumped by 35 percent on the back of power shortages in South Africa.

That one though still remains as one of the favorites among base metals.

"We're still putting out bullish ideas on aluminium, we really like that one," Lewis said.