Unrest in Pakistan following the assassination of opposition leader Benazir Bhutto, strong oil prices and a sliding United States dollar sent gold's February delivery price to a high of $861.15 per ounce overnight before settling at $860/oz - a climb of $22 or 2.63%.
Australian gold miners were quick to follow gold's lead with Newcrest up 7.7% at $36.41, Lihir Gold up 4.2% to $3.76 and Sino Gold up 4.9% to $7.11at time of writing.
The previous record for gold was set in early 1980 at $850/oz when high inflation linked to strong oil prices, the former Soviet Union's intervention in Afghanistan and the Iranian revolution prompted investors to buy the precious metal.
"With global uncertainties, a big rise in crude prices and stocks wobbling, people are having memories of 1980," Kitco Bullion Dealers senior analyst Jon Nadler told CNNMoney.com.
Oil prices closed in to settle at nearly $US100 per barrel overnight, while the Australian dollar was at US88.37c and the Euro last traded at $US1.47.
A weaker US dollar makes gold cheaper for holders of other currencies. The metal is also generally seen as a hedge against oil-led inflation.
Nadler believes big swings in the gold price could become more commonplace in the first half of the year, as fears grow over a possible recession in the US.
"We're entering uncharted territory, we'll have to see how sustainable [the gold price] is," Nadler told the newswire.
The spot price of gold last traded at $855.45/oz or $A969.24/oz.
Gold has climbed more than 30% over 2007, its biggest annual gain since 1979.
