DUBAI // Gold's latest record-setting rally has little to do with gold and everything to do with the US dollar. The price of gold leapt to a record, leading a sharp rally in commodity prices. Gold climbed to US$1,060 a troy ounce, its third record in as many days. Copper, wheat and rubber also rose. Oil futures benefited, too, climbing to $70.26 a barrel and capping a 58 per cent rise so far this year. Behind this rally, analysts say, is not so much bullishness about commodities demand, although those confident of a global economic recovery reason that commodities will rise apace. The main reason for the latest flight to commodities is concern among investors that soaring US government deficits are undermining the dollar and that they should seek shelters from inflation. "It's dollar weakness," said Carlos Banon, the director of commodity marketing at Standard Chartered in Dubai. "There's just a little more risk appetite, inflation fear." The dollar has been steadily declining this year amid concerns that efforts in Washington to stimulate the US economy by pushing interest rates to nearly zero and spending newly minted dollars are undermining the greenback's value. The dollar fell to a two-week low against the euro yesterday. The US Dollar Index, which tracks the dollar against the euro and a trade-weighted blend of other major currencies, has fallen to its lowest since August of last year. The decline of the dollar has intensified a debate over how long it can or should remain the world's dominant currency of trade. Gold, oil and most internationally traded items are priced mainly in dollars and so exporters such as China and the UAE accumulate US dollar reserves as a by-product of their massive trade surpluses. A weakening dollar reduces the buying power of these reserves, which are typically invested in the US and US dollar-denominated securities. For investors, the prospect of inflation is an argument for buying commodities and stocks anywhere and everywhere. And with signs increasing that Asia and other emerging markets are leading a global upturn, many investors are taking the advice of strategists who say that investing in emerging markets and commodities is "a no-brainer". "The commodities trade is a weak-dollar trade," Tim Condon, the chief Asian economist with ING in Singapore, told Bloomberg. "The huge expansion of the Federal Reserve's monetary base argues for inflation accelerating." This so-called reflation rally is also helping stock prices in emerging markets. Investors are borrowing US dollars cheaply in and, in what is known as a carry trade, investing them in markets abroad where they believe they can earn higher returns. Stocks in Dubai rose by 1.4 per cent yesterday to their highest in 11 months. To some extent, there is real demand behind gold's 16 per cent rally this year. Purchases of gold jewellery - primarily in India, one of the largest markets for gold - have been rising in recent months. According to the World Gold Council, Indian imports rose by 8 per cent in July compared with the same month last year. Commodities demand also appears to be improving. Better-than-expected third-quarter earnings from Alcoa, the aluminium maker, yesterday underscored what analysts say is improving global demand for metals and other raw materials. Most of the demand for gold, analysts say, is coming from exchange-trade gold funds, such as the ETFS Physical Swiss Gold Shares, which started trading on the New York Stock Exchange last month. Some economists warn that there may be something more ominous than inflation behind gold's rise. Typically, investors fearful of inflation buy commodities and sell bonds, whose yields are eroded by inflation. But this week's rally in gold has been accompanied by a rally in US treasury bonds, which have traditionally been regarded as one of the safest havens an investor can find. The last time gold and treasuries rose together was late last year, when the financial crisis erupted. A new concerted rally by the two could be a sign of more trouble ahead, they warn. Some in an increasing minority say persistent weakness in the US economy and continued contraction in credit worldwide - known as deleveraging - is more than offsetting any inflationary effects of government stimulus. They warn that deflation poses a bigger risk than inflation.