Gold demand climbed 6 percent to 1,053.9 tons in the third quarter, an all-time high of USD 57.7 billion in value terms, with European investment demand surging to a quarterly record of 118.1 tons. Gold is a major commodity of Mongolia, and its new valuations have convinced miners such as Ivanhoe Mines to concentrate more focus on gold production.

The European investment demand, which was up 135 percent year-on-year, was more than the combined investment demand from China, India and the United States. The World Gold Council has attributed the demand mainly to concerns over the Euro zone. Overall investment demand rose 33 percent year-on-year to 468.1 tons, earning USD 25.6 billion.

“The Euro-zone crisis is at its peak, and will continue to drive gold demand further into the start of 2012.” managing director for investment Marcus Grub said.

The crisis was causing investors to price in more factors, including the possible breakup of the 17-country Euro zone. Yet, while European investors were using gold as an effective hedge for portfolio security investment, demand in China and India was also starting to increase for different reasons. This was owing to people hedging against inflation.

In the United States debate over raising the federal debt and the sovereign credit downgrade drove third-quarter demand. China's demand for gold bars and coins expanded by 24 percent from year-earlier levels to 60.2 tons. Chinese jewelry demand was 13 percent higher year-on-year at 131 tons, while Indian demand was sluggish, declining by 26 percent to 125.3 tons.

Although global production levels have recovered to levels of about a decade ago, there was a perceived geological constraint to more production. New finds tend to be smaller in scope and have lower ore grades.  Global supply was 1,034.4 tons in the quarter, 2 percent higher than year-on-year levels, and mine production increased by 5 percent to 746.2 tons.

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