You can't run your car on it. It has very few industrial applications. And they won't accept it as currency at your favourite restaurant when you try to pay for lunch.

Yet gold is hitting fresh highs on a daily basis as much of the world recoils from the U.S. dollar. The precious metal closed above $1,200 (U.S.) an ounce for the first time Wednesday as investors continued to buy bullion.

Once dismissed as an antiquated target for investment funds, gold's allure has gone mainstream amid the global financial crisis and helped revive the fortunes of Canada's big gold-mining industry. From major investment institutions, to central banks, to small retail investors, gold has become the go-to haven for anyone who believes that the once mighty U.S. dollar has further to fall.

But the international gold pile-on, which has spurred the S&P TSX Global Gold index up 21 per cent in a month, is also raising concerns about a potential bullion bubble. China, the world's largest gold producer, warned yesterday that a frothy gold market may have gotten ahead of itself. Speculative funds have rushed into gold and some investment advisers are telling clients to take profits now before a major correction takes hold.

Capping an extraordinary bull run that began back in 2002 when the metal was fetching less than $400 an ounce, gold has been on a tear in 2009, gaining 36 per cent so far this year and 15 per cent in November alone. Spooked about possible inflation from the surge in government stimulus spending, continued economic uncertainty and the decline of the greenback, investors are inundating brokers with calls about how to invest in the shiny yellow metal that some believe is a way to store value.

“There has been a noticeable uptick in the last few months in terms of the number of calls we are fielding on gold and gold equities,” said Mark Allen, who works in the portfolio advisory group at RBC Dominion Securities.

The stunning gold rally, however, is now stirring fears of a potential asset bubble. A senior official at China's central bank warned of such a possibility yesterday.

“We must keep in mind the long-term effects when considering what to use as our reserves,” Hu Xiaolian, a vice-governor at the People's Bank of China said, when asked if China had plans to increases its gold holdings to diversify its foreign exchange reserves away from U.S. dollars.

“We must watch out for bubbles forming on certain assets, and be careful in those areas,” Mr. Hu said.

Speculative “hot money” from hedge funds and other investors taking a long position on the gold price has also hit record levels in recent weeks, suggesting the commodity's rapid surge could evaporate just as quickly.

Sheryl Purdy, vice-president at Leede Financial Markets Inc. in Calgary, is telling her clients to resist buying gold, gold mining companies or gold exchange-traded funds at these prices.

“For me, this is a strong sell signal. For the clients I have holding gold positions, I've already advised them to lock in [profits]. I'm not buying at this point,” she said.

Demand for gold jewellery, meanwhile, has fallen off a cliff amid the global economic downturn and soaring gold prices. It remains unclear how much demand will rebound as the global economy recovers.

There are still plenty of heavyweight backers of gold, however, even at these lofty price levels.

India's central bank gave a major psychological boost to the bullion market last month when it paid $6.7-billion to buy 200 tonnes of gold from the International Monetary Fund (IMF).

“That takes the albatross around the neck of the gold market off. We no longer fear the IMF selling 400 tonnes of gold to the same extent we might have a few months ago. That gave the market permission to move higher,” said Bart Melek, global commodity strategist at BMO Nesbitt Burns.

The world's largest gold miner, Toronto-based Barrick Gold Corp., has made it clear which way it thinks the metal's price is headed. Barrick this week moved ahead of schedule to eliminate its infamous gold hedge book which locked in the price Barrick received for some of its gold at prices well below current levels.

Barrick's closing of its hedge book may have also helped support the gold price rally. The company purchased 3 million ounces of gold from what is a relatively small gold market since September to deliver into the hedge contracts.

Charles Oliver, a noted gold bug and senior portfolio manager at Sprott Asset Management Inc., said that while there may be short-term corrections, he still expects gold to hit $2,000 an ounce.

“The only question is how we get there and how much time it takes. Along the way we are going to have pullbacks and corrections, but ultimately, when analysts do their valuations several years from now, they're going to look at a $2,000 gold price and apply that to their models,” he said.