Gold demand rose 6 percent in the third quarter from a year earlier as Europe’s debt crisis spurred investors to accumulate the metal as a protection of wealth and push prices to a record, the World Gold Council said.

Global demand gained to 1,053.9 metric tons worth a record $57.7 billion, the London-based industry group said today in a report. Investor purchases of exchange-traded funds and products, bars and coins outpaced a drop in jewelry demand and increase in recycled supplies, it said. Central bank demand for 2011 may be the most since at least 1970, council data show.

Gold climbed to a record $1,921.15 an ounce in London on Sept. 6 and is heading for an 11th consecutive annual increase. Holdings in bullion-backed ETPs yesterday were within 1 percent of the all-time high in August as concerns about Europe’s debt crisis and slowing economic growth boosted demand. European bar and coin demand topped that in India or China, the council said.

“I can’t see European bar and coin investment being poor in the fourth quarter given the euro-zone problem,” Marcus Grubb, managing director of investment research at the council, said in a phone interview from London yesterday. “When you look at China and India, the investment figures are likely to be good because you still have an inflation problem in both countries.”

Gold for immediate delivery traded at $1,745.03 an ounce at 12:17 p.m. in London. Prices averaged about $1,706 in the third quarter, up 39 percent from a year earlier and 13 percent higher than the second quarter.

Investment jumped 33 percent to 468.1 tons in the latest quarter. Bar and coin purchases increased 29 percent to 390.5 tons. The bar and coin demand in Europe more than doubled to 118.1 tons from 50.3 tons a year earlier and was the most since the fourth quarter of 2008, according to Grubb. The average demand in Europe since 2005 is 10 tons a quarter, he said. The data for Europe covers France, Germany, Switzerland, U.K., Spain, Benelux, Italy and Scandanavia.

ETP holdings gained 81.7 tons in the period, compared with 32 tons a year earlier, data compiled by Bloomberg show. Investors owned 2,314.4 tons in the products as of yesterday, more than all but four central banks. Assets reached a record 2,330 tons on Aug. 18.

Billionaire investor John Paulson cut his holdings in the SPDR Gold Trust, the biggest gold-backed ETP, by 36 percent to 20.3 million shares in the third quarter, government filings showed this week.

Jewelry demand fell 10 percent to 465.6 tons in the third quarter, the council said. Usage in India fell 26 percent to 125.3 tons, and the country and China accounted for 57 percent of global purchases, according to the report. Total gold demand fell 23 percent in India and rose 17 percent in China.

India’s bar and coin purchases totaled 78 tons in the quarter, compared with Greater China’s 62.2 tons. China’s demand for those assets had overtaken India’s in the first quarter.

Central-bank and government-institution purchases jumped more than sixfold to 148.4 tons in the quarter, the council said. Central banks may buy 450 tons for this year, signaling about 100 tons will be bought in the fourth quarter, Grubb said. The total for 2011 at 450 tons would be the most for any year since at least 1970, according to the latest available data from the council. The third quarter was probably the most ever also, according to the data. The demand is centered on central banks in Latin America, central Asia and the Far East, Grubb said.

Total supply increased 2 percent to 1,034.4 tons in the quarter from a year earlier as recycled output rose 13 percent to 426.5 tons, the council said. Mine output gained 5 percent to 746.2 tons, it said.

Bloomberg.com

Source: http://business.financialpost.com/2011/11/17/gold-demand-rose-6-in-q3/