Driving that demand, said the WGC in its Third Quarter 2007 report published this month, was a record inflow into Exchange Traded Funds (ETFs) and similar products.

Added backing to gold's strong performance came this month from the Precious Metals Equity Index, which is run by funds monitor Morningstar.

It showed the index was on a three-month return, as of November 16, of 22.5 per cent. That made it the top-ranked fund index maintained by Morningstar, ranking ahead of both emerging markets equity funds (on a 17.4 per cent three-month return), and Asia-Pacific ex-Japan (15 per cent).

The proprietary index developed by Morningstar includes funds which meet the following criteria: 'Funds in the Precious Metals Equity category must invest at least 90 per cent of their equity holdings in the securities of companies in the gold and precious metals and minerals sub-industries according to Standard & Poor's Global Industry Classification Standard.'

Mandates of the 15 funds in the index mostly oblige managers to invest for long-term capital growth by taking equity or derivative positions in gold, silver or platinum mining companies, or in physical gold, held in the form of bullion or coins.

Included in the index are funds such as AGF Precious Metals, which is on a one-year return of 31.8 per cent.

Traditionally a haven for investors during times of market turbulence, this month gold returned to favour as oil prices went on the march towards US$100 a barrel, breaching the US$800 an ounce record levels last seen 28 years ago and going on to set a new peak of US$845.40 an ounce on November 7.

Since then, with oil prices falling back from a record high of US$98.62 a barrel in electronic trading on the New York Mercantile Exchange on November 7, gold prices also slipped to trade as low as US$782.35 before recovering to US$804.10 on Tuesday.

A number of gold funds are authorised for sale to investors in Hong Kong by the Securities and Futures Commission.

The largest, in terms of fund size, is the Merrill LIIF World Gold fund, with assets under management of about US$5.4billion, followed by the Investec GSF Global Gold fund (US$148.74million), and the SGAM Fund Equities Gold Mines (US$138.9million).

All were on one-month returns of plus-20 per cent as of mid-November, according to data provided by the Hong Kong Investment Funds Association, with the Merrill fund on a return of 27.4 per cent, followed by SGAM (24.7 per cent), and Investec (22.2 per cent).

The Merrill fund was on a year-to-date return of 28.4 per cent and a one-year return of 46.7 per cent. (See table.)

These performance figures compare favourably with an average return of 11.9 per cent for commodity (natural resources and energy) funds, authorised for distribution in Hong Kong, for last month, and 31.7 per cent for the year-to-date.

Demand for gold, particularly jewellery in Asia and the Middle East, is traditionally price-sensitive, and the sharp retreat of the gold price from its early peak in November underlined this reaction. In its quarterly review, the WGC noted that in the first two months of the third quarter, with prices 'reasonably stable', jewellery buying continued to rise strongly.

However, there were already signs that investment in gold, which outside certain retail investment categories had been relatively subdued in the first six months of the year, was starting to pick up.

Then, this summer saw a surge in investor interest following the US subprime crisis and they were further encouraged by the falling dollar and inflationary fears.

'With the price rising rapidly jewellery buyers in many Asian and Middle East countries held back as they typically do in times of volatile prices,' it noted.

The WGC report also noted that from 2002 to 2006, identifiable investment in gold rose from 342.9 tonnes to 644.8 tonnes per year, a cumulative 2,381 tonnes worth US$34.4billion when valued at the annual average gold price for each year.

This brought the investment share in total gold demand to 19 per cent in 2006, compared with 10 per cent in 2001.

'Most of the increase has been in gold exchanged-traded funds, which have become very popular with investors since they were first launched by the WGC in 2003,' it noted. Out of a total investment demand for gold for the first three quarters of this year, the WGC said 171.3 tonnes were purchased in the form of gold ETFs, while 338.3 tonnes were bought in the form of coins, bars and medallions.

'There were important differences within the third quarter, with September by far the strongest month.

'Of the ETFs that we monitor, 76.9 tonnes were purchased then, compared with 36.4 tonnes and 24.4 tonnes in July and August respectively.'

The WGC said factors driving the investment tide back to gold included demand and supply fundamentals in addition to enlarged opportunities presented by new investment products.

'On the supply side, there has been the tightness of mine production - this has been on a downward trend since 2001 - the pace of producer dehedging and lower central banks sales than are allowed under the second Central Bank Gold Agreement.

'Demand has been supported by strong economic growth in key jewellery-buying countries, which has increased household income and wealth levels and boosted consumer spending.'

But a major element in gold's renaissance, it added, was the advent of gold ETFs.

'The WGC launched the first gold ETF in March 2003 on the Australian Stock Exchange.

'At the end of that year the same type of product [Lyxor GBS] was listed on the London Stock Exchange, followed by NewGold's listing on the Johannesburg Stock Exchange, then by a US product, streetTRACKS Gold Shares, which trades on the New York Stock Exchange.'

Since then, the WGC has cross-listed these products on stock exchanges around the world and WGC-supported gold ETFs now trade on the Australian Stock Exchange, London Stock Exchange, New York Stock Exchange, Johannesburg Securities Exchange and the Euronext exchange in Paris.

The WGC said that by the end of the third quarter the ETFs it monitored held about 828 tonnes of gold which was worth more than US$22billion.