Gold sales hit a record $65.3bn last year in spite of a 10 per cent fall in demand in tonnage terms, according to the World Gold Council, which released its fourth-quarter report on the market on Thursday.

 Last year, price volatility affected the jewellery market, particularly in the first half, but the volume of both investment and industrial demand rose in 2006.

Investment in gold ETF?s overtook demand for gold bars, which fell by 18 per cent last year, to 214.5 tonnes. In total, identifiable investment demand rose by 7 per cent last year. to 636.7m tonnes.

Prospects for investment demand in the first half of 2007 remain good, according to the WGC. The largest gold ETF, streetTRACKS Gold Shares, listed on the Mexican and Singapore exchanges last year, broadening its appeal from its initial New York listing.

In Switzerland, the Zürcher Kantonal Gold ETF was launched while the GOLDIST fund was issued by Finans Portfoy in Turkey. A Japanese ETF is expected to be launched this year.

Although spending on gold jewellery reached a record $44bn last year, demand in tonnage terms fell 16 per cent to 2,267 tonnes. High prices and volatility affected buying in Asia and the Middle East, mainly in the first eight months of last year.

However, demand surged in late October during the run up to the Diwali festival in India and Eid al Fitr at the end of Ramadan, helped by a retreat in the price below the $600 level. In the final quarter of last year, gold jewellery demand rose 2 per cent in tonnage terms, compared to the same period in 2005.

The WGC said demand in most jewellery markets in January was brisk but cautioned that a return of price volatility could hinder buying.

Industrial and dental demand hit a record 458 tonnes last year, rising 5 per cent compared to 2005 and surpassing the previous high set in 2000. The electronics sector reported particularly strong growth, helped by the increasing use of gold in consumer goods such as flat screen television panels and circuitry in mobile phones and MP3 music players.

Demand from the electronics sector increased 11 per cent to 312 tonnes last year.

Gold is a good conductor of both heat and electricity and is specified when performance in circuitry is crucial, such as for car air bags, which increasingly use gold-plated circuit contacts.

Gold is being used in a new range of industrial and medical applications, including nano-technology, which are still in research or early production stages, but which could have an impact on demand in years to come.

It is even being found useful in environmental applications as it can be used in traps to remove mercury from emissions from coal-fired power stations.