Gold's speculative investors may have been shaken by the yellow metal's wild ride last year, but the physical market--particularly in China--remained faithful to bullion.
According to an annual report by metals consultancy GFMS--demand for physical gold in the form of coins and bars grew in 2012, while Chinese appetite for gold jewellery expanded to record levels.
This contrasted with a 10 percent drop in overall world gold investment by tonnage, amid heavy redemptions in the over-the-counter and gold futures markets as investors cashed in their gold positions amid heavy losses in other financial markets.
While investment demand dipped, 2011 was a "bumper year for physical investment," Philip Klapwijk, head of metals analytics at Thomson Reuters GFMS said. "Gold was clearly dependent on emerging markets' economic strength as China's jewelry demand grew to a record level, while India's fell by less than 3 percent," he said.
Chinese jewellery fabrication soared 14.6 percent to hit a new record high of 496 metric tons in 2011, building on a near-20 percent gain to 423 tonnes in 2010. Indian jewellery fabrication, on the other hand, fell 3.1 percent to 701 tons, although this compared with a record high of 723 tons in 2010.
Physical gold bar investment meanwhile surged 37 percent last year to a new record of 1,209 tonnes, according to GFMS. This was spurred by strong demand for physical gold as a store of value in China and India as well as "safe-haven" interest from western investors, the report said.
Global gold coin fabrication rose 15.2 percent to 245.5 tonnes, spurred mainly by strong demand in Turkey and China, said GFMS.
The resilience of gold physical demand, despite heightened market volatility and a record-high gold price in September, is a reflection of the type of consumers that make up this sector of the gold market, said Mark O'Byrne, director at bullion dealer GoldCore.
Not only does investment in physical gold in the form of bars and coins tend to be "stickier," or less speculative, than other areas of the gold market, but Asian buyers--who account for a large proportion of the physical gold market--tend to seek items such as gold jewellery and bars as a store of wealth and a hedge against domestic inflation, said Mr. O'Byrne.
He added: "While jewelry is seen less as a store of value in the west because of high taxes and astronomical price mark-ups, in Asia, gold jewelry is much cheaper. Gold also has an added religious significance."
Rising concern over inflation and the rapid hike in disposable incomes in places like China is also driving demand for physical gold, said GFMS.
According to the GFMS estimates, the volume of gold bar hoarding in China rose 40 percent year-on-year to a new record high at 250 tonnes last year.
And this trend is likely to continue.
"With the supply channel of investment bars continuing to expand via the country's banking network, growth in this area is set for further gains in coming years, and real interest rates are likely to remain negative in the short- to medium-term," GFMS said.
The same can be said for Chinese jewelry demand, which GFMS expects to hit a new record this year.