Is gold ready to break out?

Gold broke through the psychologically important $1,000-an-ounce level for the first time in 18 months yesterday (Tuesday) as the U.S. dollar slumped against key foreign currencies, exacerbating investor fears that loose fiscal and monetary policies will spur inflation as the U.S. economy recovers.

The thinly traded September futures contract for gold traded as $1,006.90 an ounce on the COMEX division of the New York Mercantile Exchange, or NYMEX (Nasdaq: CME), the highest level for a short-term futures contract since March 18, 2008, MarketWatch.com reported. The contract closed the day yesterday at $997.90, up $3, or 0.3% for the trading session.

The London gold fixing – a global benchmark – traded as high as $1,000.75 an ounce yesterday. Its previous high was also on March 18, 2008.

Now that gold has pierced that technical barrier, some analysts are looking for the yellow metal to return to its all-time-record high of $1,033.90 an ounce – a record set last March.

"The higher the price, the higher the volatility, but this market is so concerned with inflation possibilities and dollar weakness that momentum is bringing more investors to the ‘Buy' side," George Gero, a precious-metals trader for RBC Capital Markets (NYSE: RY), told MarketWatch.com.

Gold struggled to breach the $1,000 price level last week. Yesterday's surge corresponded with a drop in the value of the U.S. dollar, which fell to its lowest point versus the euro this year.

"We had a good technical break higher last week and now the weaker dollar is helping gold progress higher," Saxo Bank senior manager Ole Hansen told Reuters. "We are finally taking out some levels we haven't seen for a while, especially in the currencies. On that basis, I would assume we will go up to test the highs from last year."

The dollar fell as low as $1.45 per euro in morning trading yesterday, its weakest level since Dec 18, 2008, according to Bloomberg News.