Demand for gold rose by 6 percent to a 1-1/4 year high in the third quarter of 2011, driven by central bank purchases and European demand for bullion against the backdrop of the escalating euro crisis, according to a report on Thursday.
Chinese demand for jewellery surpassed that in India -- the world's largest consumer of bullion -- for the first time since early 2009, the World Gold Council, an industry group, said in its quarterly Gold Demand Trends.
The gold price hit a record USD 1,920.30 an ounce in the third quarter of the year, thanks in large part to investor concern over the impact of the unfolding euro zone sovereign debt crisis on the regional economy, as well as over the burden to the US economy from its debt.
European purchases of bars and coins more than doubled to 118.1 tonnes in the third quarter, accounting for 30 percent of total coin and bar demand and making it the single largest source of demand for bullion in this form.
"If you look at Q3 in bars and coins, Europe was the biggest investment region in the world, which is an interesting result," said WGC managing director, investment, Marcus Grubb in an interview, adding that inflows of metal into exchange-traded products, at 77.6 tonnes, also highlighted this trend.
"All of that adds up to the concerns about the currency and the euro zone triggered a real spike in European gold investment in Q3. That was the first time for five quarters that European bars and coins had been bigger than both China and India," he said.
Total investment demand for gold rose 33 percent year-on-year to 468.1 tonnes, with 390.5 tonnes of that going into physical bars and coins.
The report said the strongest growth in bar and coin demand in Europe emerged in France, at 4.9 tonnes, compared with 0.3 tonnes in the same quarter in 2010.
With demand of 59.3 tonnes, Germany remained the largest bar and coin market in the region and the third largest market globally and demand more than doubled on the year from the 241 tonnes recorded at this time last year, the report said.
Chinese buyers stepped up their purchases of jewellery by 13 percent to 131.0 tonnes, in stark contrast to Indian buyers, who bought 26 percent less jewellery in the third quarter of this year relative to last year at 125.3 tonnes.
The report said the volatile price of gold, which swung between a high of USD 1,920.30 and a low of USD 1,478.00 in the quarter, coupled with a weaker Indian rupee and the inauspicious time of year for bullion buying contributed to the decline.
Overall investment in India, including coin and bar purchases, fell 23 percent to 203.3 tonnes, while in China investment rose 16 percent to 191.2 tonnes, highlighting the dominance of these two markets.
"Gold is not a Western fear investment, it is an Asian wealth accumulation investment," Grubb said.
Central banks were once again active buyers of gold in the third quarter. The report showed the official sector bought 148.4 tonnes of gold, with Russia, Thailand and Bolivia, among others, contributing to the increase from last year's 22.6 tonnes.
Grubb said the council estimated that in the year to date, the official sector has bought some 350 tonnes of gold, as central banks in the emerging world particularly seek to diversify their growing foreign exchange reserves in assets other than the US dollar.
"When you think how this market was last year, you had net (year-to-date) purchases of 78 tonnes and prior to that, you had net selling for nearly 15 years and the chances are you are going to see more buying before the end of the year," he said, adding that a figure near 450 tonnes for 2011 "wouldn't be outlandish."
Factoring in central bank buys, overall supply of gold rose by 2 percent to 1,034 tonnes from 1,013 tonnes in the third quarter of 2010, as mine supply rose 5 percent year-on-year to 746.2 tonnes and scrap sales rose 12.5 percent to 426.5 tonnes, the highest since the final quarter of 2010.