Central Banks Snap Up Gold in First Quarter

Demand from central banks for gold surged in the first quarter and the fear factor will support prices, according to the World Gold Council.

Investment demand will continue to be driven by “uncertainty over the US economy and the dollar, ongoing European sovereign debt concerns, global inflationary pressures and continued tensions in the Middle East and North Africa” said the group's managing director in an interview with CNBC on Thursday.

Demand from China and India has been healthy according to Marcus Grubb, who said central banks continue to add to their reserves.

"Central bank purchases jumped to 129 tons in the quarter, exceeding the combined total of net purchases during the first three quarters of 2010," he said.

"The resilience of gold during recent volatility in the commodities market exemplifies the strength of the global gold market and its unique demand drivers," he added.

"High levels of investment demand across the world, strong demand in India and China, the continued strength of the technology sector together with central bank purchasing demonstrates gold’s diverse demand drivers.

We anticipate continued strong demand during the rest of 2011," Grubb said.