For the first time in nearly 30 years, there are more people selling gold jewellery as scrap than buying new items. The high price of gold combined with the economic downturn has encouraged people to raise extra cash by selling everything from family heirlooms to tooth fillings.

GFMS, the leading precious metals analyst, said yesterday that an estimated 500 tonnes of gold had been sold as scrap during the first three months of this year.

Demand for new jewellery had nearly halved to 420 tonnes, the first time since 1980 that more scrap was being sold than customers were buying new rings and bracelets. GFMS added that scrap sales had hit a record level last year, rising 27 per cent to 958 tonnes.

Philip Klapwijk, chairman of GFMS, said: “We have seen scrap sales rise substantially already this year and I think we are heading for another record year.” Goldsmiths have reported a huge surge in business as people look to trade in old gold jewellery for cash. They have also benefited from an increase in demand for investment gold - primarily coins and bullion.

GFMS said that net investment demand had risen 76 per cent last year as people became concerned about the financial stability of their banks after the collapse of Lehman Brothers.

The total value of world investment in gold had risen by nearly $12 billion (£8.1billion) to $26 billion, GFMS said.

Its analysts also said that they expected continued strong investment demand this year driven by people seeking a hedge against inflation caused by quantitative easing.

Mr Klapwijk said: “We have seen people in Europe buying gold in quantities that are more typical of the Middle East and Asia. There has been a tremendous amount of activity in countries such as Germany and Switzerland, with people buying coins and 1kg bars, very often just to take home and hide.”

GFMS said that total mine production during 2008 was 2.5per cent below the previous year, at 2,478 tonnes.

Total jewellery production had been 10.2 per cent lower last year at 2,159 tonnes. Industrial use of gold fell 3 per cent to 691 tonnes, primarily driven by lower demand from the electronics industry.

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