European debt crisis drives gold rush

NEW YORK (CNNMoney) -- Even near record high prices, gold hasn't lost its luster ... especially in Europe.

Investors in Europe purchased a record $6.2 billion in gold bars and coins in the third quarter, the World Gold Council reported Thursday.

While that's not a record in terms of weight, Europe's demand for about 118 metric tonnes nevertheless amounts to nearly a third of all the investment-grade gold demand worldwide in the quarter. It also marks a 135% surge in demand from Europe from the same quarter last year.

Worldwide, demand for gold bars and coins was up 29% compared to a year ago.

The increase in demand came even as gold became more expensive than ever. Gold prices surged 20% in July and August and briefly topped record highs above $1,900 an ounce in trading, before falling back since then.

Economic uncertainty apparently was enough to make it worth the price to many investors. The third quarter was plagued by the debt ceiling debates in the United States, the Standard and Poor's downgrade of U.S. bonds, continuing high inflation in emerging markets like China and India and perhaps the biggest driver of all -- Europe's escalating debt crisis.

"Fears generated by the deepening sovereign debt crisis in Europe were manifested in a strong desire to buy gold," the World Gold Council said.

Even foreign central banks stepped up their buying, purchasing 148.4 tonnes of gold in the quarter, up from 22.6 billion tonnes a year ago.

The U.S. dollar and the euro remain the top currencies on reserve at central banks, but "questions surrounding the creditworthiness of western governments' debt" has increased the appeal of gold as an alternative, the Council said.

Thailand, Russia and Bolivia were among the central banks that publicly disclosed gold purchases. Not all central banks report this information on a regular basis though.

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The London-based World Gold Council does represent the mining industry. So it is not surprising it's quick to point out what attracts many investors to the precious metal: it's a tangible asset, it can be used as a hedge against inflation and in times of economic uncertainty, it often outperforms other investments.

But some analysts aren't quite as optimistic that gold can keep up its winning streak.

"You have a continuation of patterns that should worry the bulls," said Jon Nadler, a senior analyst with Kitco Metals in Montreal.

Global demand for gold jewelry, which has typically accounted for about two thirds of all gold demand, fell 10% year-over-year and is dragging near its lowest level in 25 years, Nadler said.

Meanwhile, the gold supply is increasing. Mine output increased 5% year-over-year in the third quarter, and the supply of recycled gold rose 13%.

"On the back of these numbers, I cannot be as optimistic as the Council," Nadler said, comparing economic fear to an IV line hooked up to investors. "I cannot see a healthy market being built strictly on the one component of investment demand."

Overall, global demand for gold -- in its forms as an investment vehicle, industrial material and jewelry -- rose 6% in the third quarter, the World Gold Council said.

On Thursday, gold futures for December delivery traded at $1,737.40 an ounce.