Gold demand rose 11 percent in the first quarter as China helped boost investment and jewelry usage, while demand will remain “firm” throughout this year, the World Gold Council said.

Global demand gained to 981.3 metric tons in the quarter, compared with 881 tons a year earlier, the London-based industry group said today in a report. China’s consumption surged 47 percent in the quarter and may double before 2020 as the growing population’s wealth increases and near-term concerns about faster inflation spur investment, the council predicts.

Accelerating inflation, Europe’s debt crisis, a weakening dollar and unrest in north Africa and the Middle East boosted gold to a record $1,577.57 an ounce on May 2. Central banks are adding to their reserves for the first time in a generation, helping prices extend a 10-year rally, the longest run of gains in at least nine decades.

Investment “demand will remain resilient in 2011,” Eily Ong, an investment research manager at the council, said in an interview from London yesterday. “Jewelry demand is remarkable. We still see inflation pressures and that has driven the Chinese investors.”

Gold for immediate delivery traded at $1,498.88 at 4:45 p.m. yesterday in London. Prices averaged $1,387.67 in the first quarter, up 25 percent from a year earlier and 1.3 percent more than the fourth quarter.

Jewelry Demand

Jewelry consumption gained 6.8 percent to 556.9 tons in the first quarter, the council said. China’s jewelry demand surged 21 percent to a record 142.9 tons, and together with India, the biggest buyer, accounted for 63 percent of global purchases.

Consumers in China and India “continue to view jewelry not just only as an adornment, but as a good investment,” Ong said. “They see a lot of value in gold. They still have expectations of a higher price.”

Investment increased 26 percent to 310.5 tons in the quarter. While bar and coin purchases climbed 52 percent to 366.4 tons, holdings in exchange-traded products backed by the metal declined. ETP assets dropped 69.9 tons from December through March, according to data compiled by Bloomberg, after reaching a record 2,114.6 tons. Investors currently own 2,037.8 tons in the products, more than all but four central banks.

Billionaire investor George Soros sold 99 percent of his bullion-backed SPDR Gold Trust assets and all 5 million shares in the iShares Gold Trust in the first quarter, a government filing showed this week. John Paulson, the biggest investor in the SPDR Gold Trust, maintained his positions.

Going Nowhere

“You have ongoing concern about the euro area and geopolitical unrest,” Ong said. “Inflation pressure is still an ongoing issue. These concerns are not going away.”

Central bank and government institution purchases doubled to 129.3 tons in the first quarter, exceeding the amount bought in the first three quarters of last year, the council said. Countries will remain net buyers this year, it said.

Total supply declined 4.4 percent to 872.2 tons in the first quarter from a year earlier as central banks purchased the metal and as scrapping fell 6 percent to 347.5 tons, the council said. Mine output rose 7 percent to 663.9 tons, it said.