As long as investors fear the global economy is headed for recession, panic acquisition of gold will continue, raising demand and prices further.

Gold purchases of central banks from China, Russia, Thailand and Mexico in the third quarter of 2011 showed a hike of more than six times to 148.4 tons compared to a year ago. Citing figures from the Gold Demand Trends report for Q3 2011 by the World Gold Council, Jason Hamlin of seekingalpha.com said central banks have been aggressively buying the yellow metal to increase their total reserve allocation, a move to diversify investments away from U.S. dollars.

"Gold anywhere under $2,000 will soon seem very cheap," Hamlin noted.

Central bank purchases have more than doubled by 114 per cent over the previous quarter, and this by far "represents the highest level of central bank buying since at least 1970 and may be the most on record," he said.

As central banks scramble to buy gold, demand and prices will ultimately push upward and could hit $2,000 per ounce in the next three to six months, even go beyond the inflation-adjusted high of $2,400 during 2012.

"If hyperinflation hits or investors lose faith in fiat money and scramble for a safe-haven investment, gold is likely to reach $5,000 or higher," Hamlin said.

Demand for gold, perceived as a wealth stabiliser, in the third quarter of 2011 reached 1,053.9 tonnes, a 6 per cent jump compared a year ago, translating to an all-time high in value terms of $57.7 billion.

The World Gold Council's Gold Demand Trends report for Q3 2011 said investment demand spurred the tremendous growth, expanding by 33 per cent year-on-year to 468.1 tonnes from 352.1 tonnes in Q3 2010. The succeeding price hikes led to a record $25.6 billion in value terms, almost double the $13.9 billion witnessed in Q3 2010.

"Unsurprisingly, investment demand for gold was a key driver during the third quarter. Increasing levels of inflation, the U.S. credit rating downgrade, a worsening eurozone sovereign debt crisis and the lacklustre performance of many assets drove investors to increase holdings in gold in order to protect their wealth. Given gold's proven risk mitigation properties, it is likely that investors will continue to seek protection from economic uncertainty, which shows no signs of abating," said Marcus Grubb, Investment at the World Gold Council Managing Director.

"The long-term fundamentals for gold remain strong with a diverse and growing demand base coupled with constrained supply-side activity," Grubb added.

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