Gold hit a 17-year high on Friday as concerns about inflation from high energy prices and worries about the US budget and trade deficits prompted investors to buy.

Bullion peaked at $458.80 a troy ounce, its highest level since December 1987, after breaking through last December’s long-term high of $456.75. The swift move through key technical and psychological levels of $450 and $455, and strong investor buying, increased the prospect of bullion scaling new long-term peaks.

The new highs mark the longest bull market run for bullion since it was free floated in 1968. The metal’s fortunes turned round in the summer of 2001 when it hit a 22-year low of almost $250 a troy ounce due to central bank selling. Its rise over the past four years has been largely the result of a near 40 per cent decline in the dollar against the euro.

Gold has not just risen recently against a weaker dollar, but also against other currencies. Bullion on Friday hit a long-term high of €374 a troy ounce and Y1,630 a gram. Gold normally has a negative correlation against the dollar and a positive correlation with the euro.

“When gold broke through $450, it started to move up by itself and lost all correlation with other currencies,” said David Gornall, bullion and exchange director at Natexis Metals. Mr Gornall said recent gold buying was stimulated by inflation fears. US Federal Reserve officials have said in recent weeks that inflation has ticked up. Although US inflation for August met expectations of 0.5 per cent, economists expect a higher figure in September due to the rise in energy prices following Hurricane Katrina.

Inflation fears are creeping up in the UK too. On Tuesday, data showed inflation rose to 2.4 per cent in August, which was above the 2 per cent targeted by the Bank of England.

Figures released on Friday showed inflation within the European Union was 2.2 per cent in August, just above market expectations.

“I never thought that I would see gold become an inflation story again,” said Mr Gornall. Investors have piled into gold in recent months. On the Comex exchange in New York, the open interest, which is the number of contracts bought by investors, is more than 320,000 contracts. This equates to about 32.5m ounces of gold or about four years of mine supply.

“We have never seen open interest numbers like this before,” said Mr Gornall. Many of these investors are betting on rising prices. Analysts estimate speculative investors are net long on gold by close to 20m ounces.

Investors have also been big buyers of gold financial products. Streettracks Gold, the gold price tracking fund, has more than 200 tonnes of gold held on deposit on behalf of investors after making its market debut last November. This investor buying is not insignificant as it amounts to about 5 per cent of global gold demand.

Alan Williamson, precious metals analyst at HSBC, said further short-term gains were possible. “However, as the net long position approaches a maximum . . . some profit-taking is likely, if not inevitable.”

The HSBC analyst said September historically had been a very good month for gold. Conversely, October had generally been a bad month, with the gold price falling in 11 of the past 15 years. November and December have been good for gold.