Gold climbed further into record-high territory Wednesday.

It closed up $4.70 to $1,043.30 US an ounce after trading as high as $1,048.20, three dollars an ounce higher than the high it reached in trading on Tuesday.

TSX gold sub-index 3-month chart

Canada's benchmark S&P/TSX Composite index — heavily weighted in gold stocks — rose again Wednesday after a triple-digit gain the previous day. The index gained 101.9 points to close at 11,349.9. That followed a gain of almost 300 points, or 2.6 per cent, in the first two days of trading this week.

In New York, the Dow Jones industrial average lost 5.67 points to close at 9,725.58, and the Nasdaq composite index gained 6.76 points to finish at 2,110.33. The S&P 500 gained 2.86 points to 1,057.58.

Inflation fears

It's all about the fear of inflation, Stephen Johnston, president of Calgary-based AgCapita Farmland Investment Partnership, told CBC News.

Johnston said markets are worried that governments will increase the supply of money to cover massive borrowing for stimulus spending.

Some predict gold could go to $1,150 US an ounce.

"People now are moving into gold, because they're concerned that the governments in the countries where they hold currencies are going to debase those currencies," he said. Johnston's fund invests in farmland, and interest is "extraordinary," he said, as investors look for assets that will hold their value if inflation takes off.

"We receive calls every day from virtually every part of the world," he said.

Patricia Mohr, Commodity Market Specialist at Scotiabank, agreed inflation is a factor in gold's rise. Much more than that, she said, is the continuing decline of the U.S. dollar against other currencies, especially the euro, as the relative economic strength of the U.S. declines.

'Economic power has shifted somewhat from the U.S. economy to the emerging world'—Patricia Mohr, Scotiabank

"I think (there's) a general perception that economic power has shifted somewhat from the U.S. economy to the emerging world, particularly China, Southeast Asia, India and to a lesser extent Brazil," she said.

The U.S. dollar has also traded lower amid reports on Tuesday — later denied — that Persian Gulf oil producers have been in secret talks about moving away from pricing the commodity in U.S. dollars and toward using a basket of currencies.

The Canadian dollar, which gained a full two cents against the U.S. greenback in the first two days of trading this week, slipped 0.25 cents Wednesday to 94.13 cents US.

Mohr expected the U.S. dollar to move irregularly lower over next twelve months. "I am telling a lot of our industrial clients at the bank now to really attempt to be competitive with a Canadian dollar near parity with the U.S. currency which we expect in the next 12 months."

If that's true, gold, which is priced in U.S. dollars, would continue to stay high.

Gold could go to $1,150

Mohr predicted gold will stay above 1000 over the next six to 12 months and said she has even seen some predictions — which she described as "credible" — that it could reach $1,150 sometime in the next six months.

As a major producer of gold, Canada benefits from rising gold prices, but the growing strength of the Canadian dollar — especially if it's sudden — will hurt other Canadian exporters.

Silver, which moves in tandem with gold and benefits from an economic recovery because it is used in electronics, also rose Wednesday, closed 21 cents higher at $17.48.

Mohr predicted silver prices will range between $16 to $18 an ounce over the next year.