GOLD sales soared to a record $53.6 billion (£30.7 billion) last year as a weak dollar, concern about terrorism and rapid expansion in India diverted investment away from shares and bonds.

The rise was revealed two weeks after Alan Greenspan blamed terrorism for pushing the price of gold beyond its underlying strength as a commodity, in his first private sector speech since stepping down as chairman of the US Federal Reserve.

Jewellery accounts for about three quarters of gold sales and last year’s rise in total gold revenues was driven by a 25 per cent increase in sales relating to Indian jewellery.

India now accounts for 23 per cent of global “consumer” gold sales — jewellery, medals, bars and investment funds — by volume, followed by America at 12 per cent.

Gold is used extensively in India, where it is seen as an important adornment for women as well as being a status symbol. Growth in India’s economy in the past 13 years has created a vast, relatively wealthy middle class increasingly keen to spend its extra income on gold as its rising price boosts its appeal as an investment.

Philip Olden, managing director of the World Gold Council, said: “Gold is traditionally a good investment in times of political and economic uncertainty. The dollar has been weak for several years, while India, China and the Middle East have seen huge increases in disposable income.”

Mr Olden said he believed that people had adopted more of a “live for now” philosophy after the September 11 terrorist attacks, which, together with a surge in innovative jewellery, had further fuelled demand for gold.

The resulting rise in the price may have dissuaded many in America and Western Europe from buying gold jewellery, but it has probably increased demand in some emerging economies where it is regarded primarily as an investment, analysts said.

The price of gold has doubled in the past three years and closed last night at $553.40 an ounce. The value of gold sales rose 14 per cent to $53.6 billion last year, while the volume of gold jewellery sold rose by 5 per cent to 2,736 tonnes, according to the World Gold Council.

Last night Barrick Gold, which is poised to become the world’s biggest producer when it completes an acquisition next month, declared earnings of $175 million in the fourth quarter, up 12 per cent from a year ago.

John Meyer, a Numis analyst, said: “The price of gold is likely to stay high for a few years yet. The Chinese central government, which has only stepped up its investment in gold in a relatively small way so far, is likely to buy increasing amounts in the future as its economy grows and the need for central reserves rises.”

Mr Meyer predicted that the price of gold would hit $600 an ounce this year and would stay at $500 to $650 an ounce in the next few years. So-called exchange traded funds, which started appearing about three years ago and are structured like investment trusts but invest only in gold, attracted a net $3 billion of new capital last year.

The value of gold used for industrial purposes and gold teeth increased from $5.4 billion in 2004 to $6 billion last year.

The gold price normally falls in mid-year after the Indian wedding season ends in May. Indian weddings are a huge driver of gold demand, as are the Chinese New Year and Christmas in the West.

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