Last November, the gold market was mostly going nowhere. This month it has been on a one-way street to 28-year highs.

The dramatic rise has been fueled by a perfect storm for bullion -- inflation fears on record crude oil prices, a tumbling dollar and safe-haven buying due to feeble stocks and credit market jitters.

Commodity experts agree that bullion will no doubt eclipse the all-time record of $850 and even test the unchartered waters of $900 or $1,000, as its stellar performance has now attracted strong market interest as an alternative investment.

The big reason gold is in a bull market is that it has the potential to become a recognized asset class by the institutional market, said Robert Lutts, president and chief investment officer of Cabot Money Management in Salem, Massachusetts, which manages $500 million of client assets.

However, market watchers also warn that an eventual price correction could be brutal, especially if the support of a dollar slump and crude rally disappears.

David Rinehimer, director of Citi Futures Perspective in New York, said that bullion was boosted by flight-to-quality demand as global stocks were pummeled after huge write-downs in mortgage-related assets by financial institutions.

Rinehimer said that buying gold could also be a strategy to invest in the commodity markets, as bullion usually tracked crude oil. He added that the price of gold had been the most sensitive to the rising energy markets.

Don't expect a top in the gold market until you see some indications of a top in the crude oil market. The gold market will continue to go up to new highs as long as it keeps pace with the crude oil market, Rinehimer said.

On Friday, spot gold traded around $832 an ounce, below its all-time high of $850, while most-active December gold futures were at $834, compared with the continuous spot-month record of $875.

DON'T BLAME SUPPLY

Scott Meyers, senior analyst at Pioneer Futures in New York, said that gold would for sure test the record highs set in 1980. With crude oil heading toward $100, you got the perfect situation for the highest prices in gold ever, he said.

In contrast to oil, a lack of supply is not the reason for lofty gold prices.

Gold contracts traded on the COMEX division of New York Mercantile Exchange are currently in contango, where the price of gold that is about to be delivered is lower than for later deliveries, while the crude futures market is backwardated, which is the exact opposite to contango and a signal of supply tightness.

This is because gold is not consumed the way other commodities are, and there is a large above-ground inventory of gold.

Also, gold is seen as a form of currency, and the metal is boosted as an alternative to holding the dollar, which hit record lows against major currencies this week. Speculation about some central banks shifting reserves away from the flagging U.S. currency also benefits bullion.

The market has no faith in the U.S. dollar. What we are seeing is money continuing to come out of the dollar and going into gold, said Peter Hillyard, head of metals sales at ANZ Investment Bank in London. He said gold would hit $850 on a spot basis by January.

ROCKY RIDE AHEAD

Yet, analysts also reckoned that a sharp correction could be in the making because of bullion's impressive gains in a relatively short period of time. Both spot gold and futures soared as much as $40 just this week and were up about $200 from their August lows.

Even a $50 or $60 correction would not be that unusual, considering the extent of the move higher and the fact that you have a record noncommercial net long position in the market, Rinehimer said.

Cabot's Lutts contended, however, that the current bullion market was largely comprised of long-term investors and very few speculators or institution investors buying gold for quick profits.

The extra market liquidity provided by the popular gold exchange-traded funds should also reduce price volatility, he added.

I think a new high to $1,000 is where we go before we stop, Lutts said.

(Additional reporting by Atul Prakash in London and Chris Kelly in New York; editing by Walter Bagley)

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