Chinese gold consumption rose 10 percent to a record 255.2 metric tons in the first quarter, defying a global slowdown and putting China, already the No 1 producer, on pace this year to overtake India as the biggest buyer of the precious metal, the World Gold Council reported Thursday.

"China and India have seen continuing economic growth and while China's economy is expected to slow, it will nonetheless surpass the rates of growth in the West," said Marcus Grubb, managing director for investment at the industry-funded council based in London.

The council, reiterating its forecast from February, said it expects that China will become the biggest source of demand for gold in 2012.

Spurred by investors' concerns over high inflation and limits on real estate holdings, demand from China during the Jan 1-March 31 period increased 7 percent from the previous three months — the second consecutive quarter in which Chinese gold buying topped India's, the council reported. Indian demand fell 29 percent, to 207.6 metric tons, from the first quarter of 2011 due to a strike by jewelers, the weak rupee, and government measures to reduce gold imports and the country's current account deficit.

China and India together make up about 54 percent of the world's gold purchases, although the latter has long been the No 1 buyer.

Gold demand in China could jump by as much as 30 percent, to between 900 and 1,000 metric tons in 2012 from 769.8 metric tons last year, Albert Cheng, the council's Far East managing director, told Bloomberg News from Singapore. Indian usage may fall to 800 to 900 metric tons, from 933.4 metric tons, he said.

"Investors are selling gold now to seek cash and rebalance their investment portfolio because of concerns about the euro zone sovereign-debt crisis," he added. "The fundamental reasons for investing in gold remain very strong, so these investors will return."

Globally, demand for gold fell 5 percent during the first three months of 2012, to 1,097.6 metric tons. Gold prices during the quarter were on average 22 percent higher than a year ago though well off their all-time high set in early September 2011.

Reduced demand from the world's central banks as well as the jewelry and technology sectors outweighed an increased appetite from investors.

In China, however, both areas saw growth. Gold demand from jewelers in China rose to 156.6 metric tons, about 30 percent of the global total for the category, while investors' consumption rose 13 percent year-on-year to 98.6 metric tons.

"Further growth is expected in China," the gold council forecast in Thursday's report. "Investors remain wary of high inflation rates, and property market restrictions continue to drive demand."

The report added, however, that growth in Chinese jewelry demand is likely to remain moderate as the market matures and China's economy cools.

Expanding wealth and the 2002 introduction of private ownership of bullion and gold-based investment products have also helped spur demand by Chinese eager to diversify portfolios.

"Chinese citizens face numerous hurdles and restrictions to investing directly in foreign equity markets, and with inflation rising, many see gold as a good way of protecting the real value of their investments," Barclays PLC analysts were quoted by Dow Jones Newswires as saying. "The start-up of a large number of gold exchanges in different parts of the country have stimulated very rapid growth in consumption of gold in jewelry and investment forms."

However, it remains illegal to export gold from China, which is already the world's biggest producer of the metal. The increased demand therefore is likely to push up reserves of the metal and reduce the availability of gold for the market.

In gold futures trading Thursday, the most actively traded contract, for June delivery, rose $38.30, or 2.5 percent, to settle at $1,574.90 per troy ounce on the Comex division of the New York Mercantile Exchange. That was a sharp rebound from Wednesday's fall to gold's lowest price in 10 months, pressured by concerns over the European debt crisis that had boosted demand for the US dollar at the expense of precious metals.

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