Central banks, whose money printing activities are fuelling fears of inflation and driving investors to gold as an un-manipulated store of value, bought bullion themselves last year at the fastest annual rate since 1964.

They thus continued the net buying trend they began in mid-2009.

The World Gold Council said "the two dominant reserve currencies are beset with issues [leading to] interest in gold as the one currency free from the impact of government policy and intervention".

Central banks bought net 440 tonnes, accounting for about 10% of last year's global volume growth of 4067 tonnes.

Investment was the main driver as investors sought safe harbours against possible inflation and economic upheaval.

Investors and jewellery accounted for 933 tonnes.

The WGC predicted demand would remain high this year because of low or negative real interest rates in many developed world countries, and the existence of inflation in emerging economies such as India, China and Vietnam.

Over the past two years central banks bought 500 tonnes - the WGC highlighted and central banks' wish to diversify reserves, promote financial market stability and preserve national wealth all suggested buying might continue.

A slowdown of the economy, and potentially private buying, in China could be offset by demand from India, which has "a number of auspicious days in the 2012 Hindu calendar relative to recent years".

Last year was a rollercoaster for gold holders. A 30% rally by September to $1,895 per troy ounce then gave way to weakness, and a 19% pullback to $1,531.

It is now $1717. Germany's DekaBank said today it expects $1720 over three months, and around $1800 over both six and 12 months.

The WGC noted the gold price was about twice as volatile as its long-term average. From a low point in June of 22-day rolling volatility at just below 10%, it spiked to above 35% in September, before ending the year at around 25%.

The price was made more volatile in the closing three months of last year partly by strong selling of gold ETF positions as poorly performing hedge fund holders raised cash to meet redemptions.

According to regulatory filings detailing their largest positions, and Bloomberg, Paulson & Co. Cut its $3.2bn holding of SPDR Gold Trust by 15%, the $6bn Vinik Asset Management reduced its own $500m position, while Tudor Investment Corp cut its gold position also.

But not all hedge funds have been sellers. Soros Fund Management has doubled how many SPDR gold shares it held during the fourth quarter, though it trimmed gold mining equities.