Panicking investors snapped up gold yesterday as the price rose to more than $1,000 per ounce for the first time amid escalating fears of the global credit crisis.

Oil also rose to a new record, at $110 a barrel, as the US dollar fell to fresh lows, fuelling fears of an American recession.

News that a $21 billion mortgage fund had collapsed sent shivers through markets. Bankers said the collapse of Carlyle Capital Corporation (CCC), a fund listed in Amsterdam and owned by the US private equity giant Carlyle, was a sign that the credit crunch had taken a deadly turn.

CCC collapsed even though it invested in high-quality mortgages, rather than the subprime loans that triggered the credit crisis last summer. Sources said the City was bracing itself for a string of similar fund collapses.

Fund managers said that investors would flock to gold and predicted the price could rise as much as 70 per cent higher.

Mark Dampier, of the independent financial adviser Hargreaves Lansdown, said: “Gold is attractive in an economic downturn because you can’t default on it and unlike money, you can’t just print more of it. The finite supply at a time increasing demand also pushes the price up further.” Gold’s last great rally was in the late 1970s when the Cold War was at its height, inflation rampant and people were stockpiling baked beans.

Fears are growing that Britain’s £1 trillion debt mountain could collapse as borrowers find it difficult to refinance their debt. Experts fear that banks will tighten their lending conditions, making it even harder for people to take out loans and mortgages.

The collapse of CCC came amid deepening gloom in the City after economists attributed the Government’s soaring borrowing forecasts to an expected shortfall in the taxes paid by banks and other financial companies as their profits plunge. Alistair Darling said on Wednesday that Britain's borrowing would rise to £43 billion next year — £13 billion more than Gordon Brown forecast in his Budget last year.

Peter Spencer, tax adviser to the Ernst & Young Item Club, an independent economic forecaster, said that the City’s weakness was likely to worsen in the coming months. “We think this is just the beginning, not the end.”

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