Investors forsook gold exchange traded funds in the first quarter in favour of coins and bars, the World Gold Council said, with buying of physical investment products helping lift overall bullion demand by 11 per cent.

The WGC said ETFs recorded their first net quarterly outflow since mid-2007 in the first three months of the year, with overall holdings of the products - which issue securities backed by physical gold - falling by 55.9 tonnes.

Total coin and bar demand rose by 52 per cent or 125.5 tonnes to 366.4 tonnes in the first quarter. Gold investment increased by 26 per cent in tonnage terms to 310.5 tonnes, helping raise total bullion demand to 981.3 tonnes from 881 tonnes.

Eily Ong, research manager for the industry-funded WGC, said she expected this trend to persist throughout the year.

'We have had geopolitical unrest in the Middle East/North Africa region, the ongoing uncertainty and concern about sovereign debt issues (in Europe), and continuing global inflationary fears around the world,' she said.

'In China and India, they are still trying to hike interest rates to combat inflation,' she said. 'All these provide a very suitable environment (for gold investment).'

Jewellery consumption, which recovered last year after a weak 2009, continued to rebound, with total buying up 7 per cent to 556.9 tonnes, the largest single segment of demand. This was geographically specific, led by Asia. China's gold jewellery demand rose by 21 per cent to 142.9 tonnes in the first quarter, while Indian buying climbed by 12 per cent to 206.2 tonnes. Jewellery demand fell in the Middle East, Italy and the United States.

Relatively little scrap jewellery was returned to the market in the first quarter, Ong said.

'In the Eastern markets, they are trying to accumulate gold, so we don't see much recycling because accumulation is more of a focus for them,' she said.

'But in terms of Western markets...there is a lot of information and knowledge about recycled gold, so consumers there are more aware of recycling gold.'

Central banks were also major gold buyers, adding 129.3 tonnes to their holdings, up from 58.8 tonnes in the first quarter of last year. Until recent years, cental banks were net suppliers of gold to the market.

The scale of central bank purchases in the quarter, coupled with a slight drop in scrap supply, pressured supply down by 4 per cent to 872.2 tonnes in the first quarter.

Overall prices should remain underpinned this year by concerns over the global economy and geopolitical unrest, the WGC said.-Reuters