The second quarter 2010 edition of Gold Demand Trends by the world's leading authority on gold said European retail investors were also making an increased contribution to investment demand.
"Economic uncertainties and the ongoing search for less volatile and more diversified investments such as gold, are likely to underpin demand for investment in the immediate future," the WGC report said.
It added that recent developments in China, such as the Proposals for Promoting the Development of the Gold Market, put forward by the Peoples Bank of China, together with five other ministries/regulators and designed to increase gold ownership among Chinese residents, also bodes well for the precious metal.
Reflecting this, Chinese investment demand increased by 121% to 37.7 tonnes for the quarter, compared to 14.7t in the same period in 2009.
However, the WGC said uncertainty in Europe and the likelihood of higher unemployment rates, could further heighten consumer demand in this part of the world.
European retail investment demand during the quarter rose by 115% to 84.8t, its highest level since the fourth quarter of 2008 and the first quarter of 2009, when the global financial crisis triggered fresh investment demand.
European retail investment demand in 2009 represented 40% of global demand, compared to just 7% a year earlier, and has been sustained into the last quarter, with the region still accounting for 35% of the world's demand for small gold bars and coins.
Net retail investment (bar and coin demand) reached 243.1t, a 29% increase compared to the June quarter of 2009.
Physical gold bar demand, which largely covers the non-western markets, rose 29% to 96.3t, compared to the same period in 2009.
The average price received for the period was $US1196.74 an ounce ($A1352.09/oz), a 30% increase compared to the same period in 2009.
While on the supply side, supportive factors suggest that total mine supply is likely to trend higher, particularly as scope for producer de-hedging continues to diminish.
Total gold demand in the second quarter rose by 36% to 1050t, largely reflecting strong gold investment demand, and increased 77% to $US40.4 billion.
As the strongest performing segment, investment demand jumped a whopping 118% in the second quarter compared to the same period last year, to 534.4t, versus 245.4t in 2009.
The largest contributor to this was a rise in exchange traded funds which grew by 414% to 291.3t, the second-highest quarter on record.
This brought total gold holdings to a new high of 2041.8t, worth $81.6 billion at the quarter end on London's PM fix.
Global jewellery demand in India, the world's largest market, was little changed from levels a year earlier, down 2% to 123t and 408.7t globally, a 5% reduction compared to the second quarter of 2009.
The WGC report said a high price environment took its toll in June when Indian demand tailed off as consumers preferred to wait for less volatile price moves.
In value terms, jewellery demand increased to $15.7 billion from $12.8 billion in the corresponding period in 2009.
With the return of demand for consumer electronics, industrial demand grew by 14% to 107.2t, reflecting a recovery in the US and Japan, as well as demand from Taiwan and South Korea.
The WGC believes demand from this sector may revert back to historical levels in response to the global economic recovery.
On the supply side, numbers reached 1134.4t in the quarter, a rise of 17% compared to the same period in 2009, while mine production increased by 5% to 658.5t, from 637t in 2009.
Australia accounted for the bulk of this as Newmont Mining Corporation's Boddington mine completed its first year of production, along with contributions from Mexico and Argentina.
Offsetting this was a 32% decline in production at Freeport McMoRan Copper & Gold Inc's Grasberg mine in Indonesia due to lower ore grades and a 32% drop in production from Newmont's Yanacocha operation in Peru.
Net producer de-hedging dwindled to insignificant levels in the June quarter, dipping to just 15t from 31.1t for the same period in 2009.
The outstanding global hedge book has now declined to around 195t, most of which is attributable to AngloGold Ashanti.
The official sector was again responsible for taking supply out of the market as purchases by central banks slighted exceeded sales, resulting in net purchases of 7.7t.
International Monetary Fund sales during the quarter amounted to 47t, bringing total sales by the IMF to date to 283.1t, leaving just 120.2t remaining of the 403.3t earmarked for sale.
Recycling or scrap activity during the quarter supplied an extra 496t to the market.
