Gold prices rose to $1,250 an ounce on Thursday as market jitters over sovereign credit risk and equity markets urged investors to park their funds into safer domain.

As the US stock markets fell due to the economic recovery worries declared by the Federal Reserve, the precious metal's price hit $10 more early in the day's trading.

"The situation was compounded by the credit risks lingering in the European markets that might singe sovereign debt papers in the medium to long term," notes a gold specialist at Chicago-based futures broker PFGBest.

Spot gold was at $1,245.05 an ounce by 2:30 p.m. EDT (1830 GMT), versus $1,235.20 late in New York on Wednesday. U.S. August gold futures settled up $11.10 at $1,245.90.

Gold has reestablished its traditional inverse correlation with the dollar and the confidence in equity markets. An analyst at Credit Suisse explained further: "Low interest rates are generally good news for precious metals. We believe that the Fed and the ECB (European Central Bank) will remain on hold for quite some time because of the European debt problems.