SAN FRANCISCO (MarketWatch) -- Gold won't likely get a break this summer as investors seek out alternatives to falling confidence in the economy, and the strong investment demand may couple with physical demand in the fourth quarter to lift prices back into record territory, analysts said.

"The gold market in the past has been seasonal, with the rule being 'sell in May and go away'," said Julian Phillips, an analyst at GoldForecaster.com.

The seasonal pattern usually meant that gold would see a lull in demand beginning in May and lasting until the middle to the end of August, with main demand appearing in the final quarter of the year and lasting until the end of May, he said.

But for the month of June, gold futures prices climbed more than 4% and they gained almost 11% in the first half of this year.

"Expectations of a quiet summer in the gold pits have been summarily dismissed as a confluence of bullish factors have led gold to rally sharply and test the high side of the recent trading range," said Mark O'Byrne, a Dublin-based executive director at Gold and Silver Investments Ltd.

And gold's likely to continue its rally in the second half of the year -- "as it did last year and has done most years since the inception of the gold bull market," he said.

Some analysts say the latest bull market began in 2002. That's when prices began a steep climb from around $280 an ounce.

O'Byrne, like many analysts, expect gold prices to climb right back to their futures price record of nearly $1,034 an ounce, seen in mid-March, and maybe even beyond. He expects to see $1,200 in the coming months before the precious metals suffers from a bout of correction and consolidation.

Still, there are lots of changing influences for gold traders to consider these days.

Investment party

The average gold price in the first half of 2008 was around $910, according to Jon Nadler, a senior analyst at Kitco Bullion Dealers, and the price is up almost 43% in June from a year ago. "The widening trading range and added volatility will remain the principal features of the market as we turn the corner into the second half."

Investment buying has been key to gold's success. It's made the yearly "doldrums for gold, a vigorous season of its own," said Phillips.

Demand is at a much higher level than ever seen in the market before with the investment side of demand reflecting the performance of "gold as a monetary metal," he said.

Overall demand for gold climbed to $20.9 billion in the first quarter -- more than double the level of four years earlier, according to a report from the World Gold Council released in May. See full story.

“ 'Sub-$1,000 gold days are drawing to a close [and] by the end of this year, I would find it difficult to explain a sub-$1,000 gold price.' ” — Peter Spina, GoldSeek.com

"Gold will continue to attract increasing monetary demand and the result will be a much higher price," said Peter Spina, an analyst at GoldSeek.com. "Sub-$1,000 gold days are drawing to a close [and] by the end of this year, I would find it difficult to explain a sub-$1,000 gold price."

Meanwhile, "global macro-economic and currency markets ... look awful with little effective action going on to rectify matters," Phillips said.

Since January, the U.S. dollar has weakened against every major currency except for the Canadian dollar, Kathy Lien, chief strategist at DailyFX.com said in a research note issued on Monday.

And gold has been moving in the opposite direction of the U.S. dollar over the past few months. "The gold price is and will be more influenced by currency and economic factors than by physical demand," said Phillips.

U.S. stocks have suffered a steep loss, with the Dow Jones Industrial Average DJIA, -0.47% down more 14% in the first half of the year. See Market Snapshot.

Strength in oil has helped drive prices for gold higher as well. Prices have reached record levels well over $140 per barrel. See Commodities Corner.

But the price for "paper oil" may be "over extended," said Ned Schmidt, editor of the Value View Gold Report. He expects oil prices to fall below $100 per barrel by the year's end.

"Gold may still need to test $850," before summer is over, to put a final bottom in place, he said. "This would allow for gold to move back to more than $1,000 by New Year's Eve."

Physicality

Later in the year, the gold market usually sees an uptick in physical demand.

From the middle to the end of August, the Indian market "revives" following the harvest gathering and after the monsoons, said Phillips. Some 70% of gold buyers come from the agricultural sector in India and then they stay in the market until May the following year, he said.

No tax is paid on agricultural profits so in India "it disappears from view into gold and property," said Phillips. Also, the "developed fabrication world begins to buy in September to fabricate in time for the year-end festivities."

Given that, "gold's high season lies in the final and first quarter of the year," Phillips said. So "expect a 'golden' second half for precious metals.

Price guess

Blanchard expects gold to continue to climb and likely pass the $1,000 mark at some point in the next few months, then reach $1,150 by the end of the year, said David Beahm, a vice president at the coin and precious metals retailer.

Nadler said Kitco has raised its initial 2008 trading range estimate for gold by "only a small margin" -- to $730-$1,030, from a range of $640-$940.

Kitco expects the average price to mark a slow decline from the $910 area to the mid-$800s as the market approaches the end of the year.

"Barring surprise geopolitical developments or significant financial implosions, which could catapult the metal to new pinnacles for a brief shining moment, the outlook is for a U.S. dollar recovery in the second half and for a retreat in gold towards the $730 area it initially touched back in May 2006," said Nadler.

But overall, O'Byrne sees the situation for the gold market -- weak supplies, increasing investment demand macroeconomic and geopolitical risk -- as "a very toxic combination."

And in "these circumstances, it is absurd to suggest that the gold price could fall materially from these levels in the second half of the year," he said.

"The inflation adjusted high of some $2,300 per ounce remains a very likely price target in the long term and looks more likely with every passing week," said O'Byrne.