Gold demand in China expanded to record levels in the first quarter of 2012, with total consumer demand in China surging 10 percent to reach a new high of 255.2 tonnes. According to a report by the World Gold Council, purchases related to the Chinese Lunar New Year stimulated growth, with commercial banks and retailers promoting commemorative gold products to mark the auspicious Year of the Dragon.

Providing a forecast for the Chinese gold demand market, the WGC added that inflation and restrictions on the property market were likely to drive demand for gold among investors seeking access to real assets.

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However, global gold demand fell 5 percent in a year to 1,097 tonnes in the first quarter of 2012, a trend that the WGC attributes to a sharp rise in gold prices - the price of gold has risen by more than 20 percent over the past year.

In its quarterly report, the WGC said:

Reduced demand in gold from jewellery, technology and official sectors more than offset growth in the gold investment demand.

India, traditionally one of the world's most important gold markets, suffered a 19 percent drop in its first quarter gold demand.

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According to the WGC, weakness and volatility in the rupee resulted in elevated local prices while consumers to digest a rise in import taxes on gold and the introduction of an excise duty on gold jewellery which prompted jewellers country-wide to strike. After the end of the quarter, and in response to the strike, the government announced that the excise duty would be withdrawn. Investment demand saw the largest decline - down 46 percent to 55.6 tonnes - while jewellery demand fell by 19 percent to 152.0 tones.

In an interview with Bloomberg Businessweek, Albert Cheng, Far East managing director at WGCsaid:

We are confident China will become the largest source of demand for gold this year. Over the next two to five years, China and India will go neck to neck and may account for more than 50 percent of world demand.

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