Last week has been one the most eventful weeks of the year for the global economy. The credit crunch is now firmly a credit crisis leading George Bush to declare "we're in challenging times". Meanwhile gold hit a record $1,000 dollar a troy ounce.

It was no coincidence that the US dollar, already plummeting in value against the euro has plunged to a 12 year low against the Yen. One thing we can always be sure of in these uncertain times is a falling dollar means the price of gold rises.

The sub-prime crisis now reaching fever pitch in the US following the news that the fifth largest bank in the US, Bear Stearns has collapsed . This again, was due to the bank's exposure to the risks of sub-prime lending. Conditions are perfect for the biggest surge in gold prices in more than a decade as investors lose their heads and chaos rules.

Investors are understandably nervous about putting their money anywhere else right now, other than perhaps oil, which has also risen in value to $110 a barrel this week.

So why is gold widely regarded as a safe haven for investors?

Primarily because gold is regarded as a hedge against inflation, a currency of last resort when the US dollar is weak.

The price of gold has risen 55% in the past year on the way to hitting the $1000 a troy ounce milestone. It is also widely anticipated that we could see further increases in the coming year, particularly with successive cuts in US base rates, which weaken the dollar's appeal and boost the attraction of the precious metal.

Right now, with panic spreading fast in global stock markets and a media frenzy, many investors have lost sight of long term investment performance.

South Africa, one of the world's major gold producing countries, is suffering from power shortages. This has resulted in a scaling back of mining activities and the country is optimistic that planned job cuts the industry will be avoided now that the price of the metal is rising. This however could well be misplaced optimism.

Demand for gold is expected to increase in India and China, the world's biggest consumers, as their economies continue to perform strongly.

Investors are now flocking to what they see as the safe haven of gold when all other investment options look shaky.

The primary reason why there is a bull run on gold is the weakness of the US dollar -and the currency just keeps getting weaker as financial turmoil grips the American economy, and threatens to spread around the world.

There is little sign of an end to this situation, with each prediction that the crisis is coming to an end there is another that the worst extent of the crisis has yet to be fully realised. The media are even making increasing references to the Great Depression.

All good news for gold then? Well no, not really...

Yes, if you take a short term view and follow the herd.

But and this is a big BUT...

If you believe in buying low and selling high, the warning signs appear to be already there. The price of gold according to analysts is at a "mature phase" - therefore the opportunity for real profits has already passed.

A famous John Kennedy quip prior to the Wall Street crash of 1929 was "you know it's time to sell stocks when even the shoe shine boy tries to give you stock tips".

One of the major signs of an overly inflated market is when it is widely reported that it has reached "new highs" - and that is exactly what is happening with gold. We also have the majority of investors talking optimistically about further rises - so investors are still flocking to the perceived safety of gold in large numbers.

Look more closely at the reporting and you will notice a growing sense of underlying negativity.

We read that the "underlying physical demand has been struggling". While gold may still be in demand in countries like India, demand globally remains constant and in a global recession we can reasonably expect demand for jewellery to fall.

The current increase is driven by nothing more than speculation with nothing to underpin prices.

This rather shaky foundation is a big danger signal - who will buy the gold when confidence returns?

In 1980, just ten days after hitting a record $850 a troy ounce, the price of gold fell to $700.

And, you know what - Once we factor in inflation, today's $1000 dollar an ounce is not that significant compared to the price in 1980.

That is because, historically, gold underperforms virtually every other asset class.

Let's look at the long term trend in gold prices since 1970 below:

There has been only two major peaks in the last 40 years, the one in 1980 and the one this year.

Otherwise the price has remained fairly constant if we take inflation into account.

Prices would need to top $2,000 a troy ounce to repeat the same spectacular rise last seen in 1980.

Take the short term snapshot over the previous five years and gold looks a pretty good bet. But look at those steep declines in the eighties and this paints a very different picture.

It is also true that the price of gold could well rise further depending on how long the economic uncertainty continues and fear stalks the stock markets.

However, apocalyptic talk of past economic meltdowns and the next major casualty in the banking industry are normally signs that the crisis is near the bottom, which could mean the current window of opportunity will close at any time.

Of course, any prediction of the future is uncertain, and especially so now with such a volatile global economic situation. But what is a safe bet is that this crisis, like all others, will pass.

Gold is not an asset with the qualities to do well in positive investment climates.

When the market rallies the price of gold can fall just as rapidly as it has risen. The latest spike is little more than a flash in the pan.