Demand for gold smashed the previous record in the three months between July and September as fearful investors switched funds from the stock market and savings into ingots and coins, often storing them at home as their trust in banks fell.

New figures from the World Gold Council (WGC) show that investment demand for gold rose 56 per cent to 382.1 tonnes for the third quarter as investors sought safe havens away from the stock market turbulence.

Dollar demand for gold reached a record of $32 billion (£21 billion) in the third quarter – 45 per cent higher than the previous record, set in the second quarter of this year, according to the data compiled by GFMS, the researcher, for the council.

Philip Olden, managing director of the WGC, said: “A lot of this is being driven by retail investors in Europe, who have been scared off the stock market. They are either taking their gold bars and coins home or putting them in safety deposit boxes at the bank.”

The market turbulence of the summer and early autumn coincided with falls in the price of gold during July and August, after it hit its record peak of $1,023 in March, which encouraged people to buy back into the precious metal.

European investors bought a record 51 tonnes of gold bars and coins as European banks reported huge write-downs and France became a net investor in gold for the first time since the early 1980s. There has been a shortage of gold coins as the fabricants who make them did not anticipate the high demand, according to Adrian Ash, head of research at Bullion Vault.

The United States, India, Switzer-land and Germany reported the biggest rises in gold investment as Lehman Brothers collapsed and the US Government announced it would have to bail out the banking system.

Gold is easy to invest in for individuals who might find a broker too pricey, as they can buy gold coins and bars through online dealers. Turnover at Bullion Vault, which allows retail investors to buy 400oz ingots, rose five fold in the year to October 31.

Demand for gold jewellery rose, with total jewellery consumption in the third quarter climbing 8 per cent from the same time last year to 647.6 tonnes, mainly because of higher consumption in India. The festival of Diwali in October keeps Indian consumption, which rose 29 per cent, high.

UK consumers spent £90 million on gold jewellery in the third quarter, 2 per cent below the figure spent during the same period last year, indicating that the credit crisis has not hit gold jewellery as badly as cheaper items in recent months. Sales at Ernest Jones, the high street jeweller which sells at the low-to-middle end of the market, fell by 3.3 per cent between August and November.

At the same time, demand for gold in industry and dentistry fell by 11 per cent to 103.7 tonnes amid weaker buying from the electronics sector and a long-term decline in the use of gold to replace teeth.

The price of gold spiked at $910 per ounce in early October and has since fallen to about $740 per ounce, as cash-strapped hedge funds have been forced to sell assets. The WGC said: “Gold is one of the few assets remaining that could be sold at a reasonable price to meet margin calls on other, worse-performing assets.”

Peter Spina, an analyst for Gold-Seek.com, said: “Funds that would like to keep their asset of last resort are being forced to sell. This is causing weakness in the paper gold market price, but it is not a true reflection of the physical market.

“There will be more victims of the fund collapse and more forced liquidations even if it requires selling your most desired assets such as precious metals. Once this process works itself through, the true market prices for gold will readjust.”

Money Central: 10 ways to profit from gold

Explore Economics

• Pre-Budget Report 2008

• Budget 2008

• World Economic Forum

• The Times MPC

Times Recommends

• 2009: worst year for employment for 20 years
• Pound edges closer to euro parity amid rate fears
• Adams follows fashion for retailers to go under