FACTBOX: What's driving surging global gold prices?

(Reuters) - U.S. spot gold prices rose to a record high above $1,203 per ounce on Wednesday, marking an all-time high for the second straight day as weakness in the dollar spurred buying of the precious metal as an alternative investment.

Following are some of the key factors that drive the market.

--------------------KEY PRICE DRIVERS----------------------

1. INVESTORS

Rising interest in commodities, including gold, from investment funds in recent years has been a major factor behind bullion's historic highs. Gold's strong performance has attracted new players and increased inflows of money into the market.

2. U.S. DOLLAR WEAKNESS

The currency market plays a major role in setting the direction of gold, with bullion prices moving in the opposite direction to that of the U.S. dollar.

Gold is a popular hedge against currency weakness. A weak U.S. currency also makes dollar-priced gold cheaper for holders of other currencies and vice versa.

3. OIL PRICES

Gold has historically had a strong correlation with crude oil prices, as the metal can be used as a hedge against oil-led inflation. Strength in crude prices also boosts interest in commodities as an asset class.

4. POLITICAL TENSIONS

The precious metal is widely considered a "safe haven", bought in a flight to quality during uncertain times. Major geopolitical events including bomb blasts, terror attacks and assassinations can induce price rises. Financial market shocks, which cause other asset prices to drop sharply, can have a similar effect.

5. CENTRAL BANK GOLD RESERVES

Central banks hold gold as part of their reserves. Buying or selling of the metal by the banks can influence prices.

On August 7, a group of 19 European central banks agreed to renew a pact to limit gold sales, originally signed in 1999 and renewed for a further five years in 2004.

Annual sales under the pact are limited to 400 tonnes, down from 500 tonnes in the second agreement, which expired in late September.

Sales under the agreement were low in the later years of the second pact, however. Gold sales under the second Central Bank Gold Agreement totaled only 1,883 tonnes, down from 2,000 tonnes under the first agreement.

6. HEDGING

Several years ago when gold prices were languishing around $300 an ounce, gold producers sold a part of their expected output with a promise to deliver the metal at a future date.

But when prices started rising, they suffered losses and there was a move to buyback their hedging positions to fully gain from higher market prices -- a practice known as de-hedging.

Significant producer de-hedging can boost market sentiment and support gold prices. However, the rate of de-hedging has slowed markedly in recent years as the outstanding global hedgebook shrank.

7. SUPPLY/DEMAND

Supply and demand fundamentals generally do not play a big role in determining gold prices because of huge above-ground stocks, now estimated at around 158,000 tonnes -- more than 60 times annual mine production.

Gold is not consumed like other commodities. Peak buying seasons in major consuming countries such as India and China exert some influence on the market, but others factors such as the dollar and oil prices carry more weight.

Source: Reuters (Compiled by Atul Prakash and Jan Harvey; Editing by Gillian Murdoch and Clarence Fernandez)