In the first quarter of 2013, total gold demand reached 963 tonnes, representing a 13 percent drop from a year earlier, according to the latest report from the World Gold Council. Heavy selling pressure and outflows from exchange-traded funds accounted for the majority of this decline. For example, shares of the SPDR Gold Trust, the largest gold fund, declined 4.7 percent in the first quarter. Total outflows in ETFs and similar products amounted to 176.9 tonnes.

However, strong demand in gold jewelry, bars, and coin helped to offset the outflows in ETFs. Total jewelry demand jumped 12 percent year-over-year to 551 tonnes in the first quarter, easily topping the five-year average of 500.5 tonnes. Meanwhile, total bar and coin demand increased 10 percent to 377.7 tonnes, compared to a five-year average of 281.3 tonnes.

Once again, China and India dominated jewelry demand by accounting for 62 percent of the global share. The Chinese New Year and India’s good spring harvest were cited as positive developments driving demand in the regions. The U.S. jewelry market posted its first year-over-year gain in more than seven years. Overall, global jewelry demand reached a record $28.9 billion in the first quarter.

The World Gold Council notes a difference between retail and institutional investors. Demand for bars and coins throughout the first quarter increased at the retail level, as the fundamental reasons for holding gold are unchanged. However, institutional investors had more reasons to sell.

The report explains, “In contrast, some institutional investors have a very different rationale for holding gold, adopting a shorter-term, more speculative approach. Among this group, a proportion of more opportunistic and ‘event-driven’ investors reacted to the Q1 price drop by selling their ETF holdings. This reaction may have been driven by several factors; profit-taking on long-held positions; loss-limitation on more recently initiated positions; a switch to other investment channels etc.”

With the major central banks around the globe still practicing easy-money policies, other central banks are loading up on assets that cannot be printed. In the first quarter, total central bank demand reached 109.2 tonnes, 5 percent lower than a year earlier, but still the ninth consecutive quarter of net purchases. Over the past four quarters, central bank demand has jumped 21 percent.

“The steady level of buying confirmed that central banks and institutions continue to favor gold’s diversification benefits, as they reduce their portfolio allocations to U.S. dollars and euro,” the WGC states. Again during the first quarter, the central banks adding to their gold reserves were distributed widely around the globe, with volumes concentrated in emerging markets.”

Central banks purchased 145 tonnes of gold in the fourth quarter of 2012, the highest quarterly haul since the sector became net buyers just a few years ago. Last year, central bank buying surged 17 percent to 534.6 tonnes, the highest annual total since 1964. In comparison, central banks bought 456.8 tonnes in 2011.

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Late Wednesday, many institutional investment managers filed their mandatory 13-F with the U.S. Securities and Exchange Commission. The filing is a quarterly report of equity holdings required by managers that oversee more than $100 million in qualifying assets, and it must be filed within 45 days of the end of each quarter. The 13-F provides a peek at what hedge funds did in the previous quarter, but investors should keep in mind that hedging and trading strategies of each fund are still unknown.

Listed below are details on how popular hedge funds invested in gold names in the first quarter of 2013:

Billionaire fund manager John Paulson is known for betting against subprime mortgages during the housing bubble, but he is also a vocal advocate for gold. Last year, he said in a letter to investors, “By the time inflation becomes evident, gold will probably have moved, which implies that now is the time to build a position in gold.”

Some have speculated that his eventual unwinding of SPDR Gold Trust shares would collapse the ETF’s price, but this has yet to occur. In fact, Paulson continues to keep a very large position in the fund. His firm Paulson & Co. Inc. held 21.8 million shares at the end of March, unchanged from the previous quarter, but higher than the 17.3 million shares held in the beginning of 2012.

Paulson kept his stake in Freeport-McMoRan Copper & Gold unchanged at 9 million shares, worth nearly $300 million. He first took a position in Freeport in the fourth quarter of 2012.

However, Paulson did trim his positions in other miners. He reduced his stake in Agnico Eagle from 1.02 million shares to 1.01 million shares, and Gold Fields from 6.54 million shares to 6.53 million shares. Shares in IAMGOLD were reduced from 3.88 million to 3.86. Paulson completely sold out of Barrick Gold, but has call options in the mining giant worth $10.6 million.

George Soros, the billionaire hedge fund manager known for breaking the Bank of England, once claimed that the “ultimate asset bubble is gold.” However, his management team still feels the need to hold a position in the precious metal. Soros Management held 530,900 shares of the SPDR Gold Trust at the end of March, down from 600,000 shares at the end of December. The firm also reduced its stake in Freeport-McMoRan Copper & Gold by 71 percent to 393,061 shares, and its stake in the Market Vectors Jr. Gold Miners ETF from almost 2 million shares to 1.2 million shares. Despite the reductions, Soros Management hiked its stake in the Market Vectors Gold Miners ETF by 75 percent to 2.67 million shares.

Greenlight Capital’s David Einhorn once wrote a colorful piece criticizing the Federal Reserve’s monetary policy, relating the central bank to force-feeding someone too many jelly donuts in hopes of a sugar rush. With the Fed maintaining record low interest rates, Einhorn explains, “As a result, I will keep a substantial long exposure to gold, which serves as a jelly donut antidote for my portfolio.”

While it is unknown how large of a physical bullion position Einhorn holds, he maintained his holdings in the miners. The hedge fund manager showed an unchanged position in Barrick Gold and the Market Vectors Gold Miners ETF of $57.8 million and $227.3 million, respectively.

In his recently released quarterly letter to shareholders, Einhorn comments on the declining gold price. “But investors are currently complacent about the unintended consequences of central bank money printing, and like most investment cycles and fads, this will persist until it doesn’t,” he explains. “Under the circumstances, it is curious that gold isn’t doing better.”

Third Point, the hedge fund founded by Daniel S. Loeb, maintained a modest stake in the SPDR Gold Trust of 130,000 shares, worth about $20.1 million at the end of the first quarter. Interestingly, he took two new positions in what could be argued as hard asset or wealth-effect plays. Third Point held 500,000 shares in Sotheby’s, a world-known auctioneer of fine art and jewelry. The firm also took a new 2.7 million share position in Tiffany & Co., the luxury retail jeweler.

The pullback in precious metals appears to have attracted a popular hedge fund. Leon Cooperman’s Omega Advisors added new positions in the SPDR Gold Trust and iShares Silver Trust worth $13.9 million and $4.4 million, respectively. The firm also took a new position in the Market Vectors Gold Miners ETF worth $4.4 million, but slightly reduced its stake in Freeport-McMoRan Copper & Gold.

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There has been a significant increase in bullion demand. The U.S. Mint sold 209,500 ounces of gold product in April, up from 62,000 ounces in March, according to online data from the mint. This is the highest monthly haul since December 2009, when 231,500 ounces of gold were sold. In fact, more gold was sold in April than the previous two months combined. Meanwhile, almost 4.1 million ounces of silver were sold by the U.S. Mint in April, compared to 3.4 million ounces a month earlier.

Due to heavy demand, the U.S. Mint halted sales of the one-tenth ounce American Gold Eagle, its smallest-denomination gold bullion coin, in late April. This is the first time the Mint stopped selling a gold product since November 2009, according to dealers and Reuters.

“While the one ounce gold bullion coins remain the most popular, demand for the one-tenth ounce coins has remained strong too, with year-to-date demand for these coins up over 118 percent compared to the same period last year,” the U.S. Mint said in a memo to authorized participants. “Accordingly, the United States Mint has temporarily suspended sales of its one-tenth ounce gold bullion coins while inventories can be replenished.”

In addition to the one-tenth ounce American Eagle, the U.S. Mint sells a one-quarter ounce, one-half ounce, and a one ounce American Eagle. Last year, only 20,000 ounces of gold product were sold in April.

Other mints around the world are also seeing strong demand. Britain’s Royal Mint sold more than three times as many gold coins in April than the same period last year, according to Bloomberg Businessweek. Month-over-month, sales are up more than 150 percent. Sales at Australia’s Perth Mint are at five-year highs, and has employees working weekends to satisfy orders.

Even though there are several exchange-traded products for gold, investors are adhering to the ‘If you don’t hold it, you don’t own it’ strategy. Terry Duffy, president and executive chairman of the CME Group, tells Bloomberg, “What’s interesting about gold, when we had that big break about two weeks ago we saw all the gold stocks trade down significantly, we saw all the gold products trade down significantly, but one thing that did not trade down, was gold coins, tangible real gold. That’s going to show you, people don’t want certificates, they don’t want anything else. They want the real product.”

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It has been a rough month for gold to say the least. Gold’s winning-streak of annual gains appears to be in jeopardy for the first time in twelve years. Over the course of only two days in April, gold plunged $200 to reach its lowest level since February 2011. In the process, it logged its worst one-day percentage drop since 1980, and the largest fall in dollar terms on record. On a technical basis, gold reached its most oversold reading since at least 1975. However, buyers are seeing the weakness as a buying opportunity.

Due to heavy demand, the U.S. Mint has halted sales of the one-tenth ounce American Gold Eagle, its smallest-denomination gold bullion coin. This is the first time the Mint has stopped selling a gold product since November 2009, according to dealers and Reuters. So far in April, it has sold 183,500 ounces of gold product, more than the previous two months combined.

“While the one ounce gold bullion coins remain the most popular, demand for the one-tenth ounce coins has remained strong too, with year-to-date demand for these coins up over 118 percent compared to the same period last year,” the Mint said earlier this week in a memo to authorized participants. “Accordingly, the United States Mint has temporarily suspended sales of its one-tenth ounce gold bullion coins while inventories can be replenished”…

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In addition to the one-tenth ounce American Eagle, the Mint sells a one-quarter ounce, one half ounce, and a one ounce. Last year, the Mint only sold 20,000 ounces of gold product in April. The all-time record for a single month is 231,500 ounces sold in December 2009.

Earlier this year, the Mint received more than 3.9 million orders for the 2013 American Silver Eagle on its first day of availability, the highest one-day sales total in the history of the program. The Mint had to suspend American Silver Eagle sales shortly thereafter. Year-to-date, 17.5 million American Silver Eagles have been sold, compared to only 11.7 million in the first four months of 2012.

Britain’s Royal Mint is also seeing a surge in precious metal demand. It sold more than three times as many gold coins this month than the same period last year, according to Bloomberg Businessweek. Month-over-month, sales are up more than 150 percent.

“Since the dip in the price of gold we have seen increased demand for our gold bullion coins from the major coin markets, and this presently shows no sign of abating,” explains Shane Bissett, director of bullion and commemorative coin at the Royal Mint, to Bloomberg. “The Royal Mint continues to supply to its customers and is increasing production to accommodate the higher demand.”

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Gold’s winning-streak of annual gains appears to be in jeopardy for the first time in twelve years. Over the course of only two days, gold plunged $200 to reach its lowest level since February 2011. In the process, it logged its worst one-day percentage drop since 1980, and the largest fall in dollar terms on record. On a technical basis, gold reached its most oversold reading since, at the latest, 1975.

Since gold is often considered to be an inflation hedge, central banks are likely to take the plunge in gold prices as another sign that their policies are not sparking inflation, despite what the Average Joe’s bank account may be indicating.

“Central banks can be opportunistic and proceed with quantitative easing now the gold market is surrendering with regards to its hyperinflation fears,” Edward Yardeni, president and chief investment strategist at Yardeni Research, tells Bloomberg. “They could also argue the weakness in commodity prices suggests a growth concern and so all the more reason to keep QE going.”

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St. Louis Fed President James Bullard confirmed this view by telling reporters at a Levy Economics Institute event, “Inflation is running pretty low right now, and its been drifting down. If it doesn’t start to turn around soon, I think we’ll have to rethink where we stand on our policy,” according to CNN.

The latest report from the Labor Department also shows inflation slowing. The consumer-price index fell 0.2 percent month-over-month in March, below estimates calling for no change. The index is up 1.5 percent from the same period last year, while the core reading on consumer costs, which excludes food and energy prices, increased 1.9 percent. It was the fourth time in five months that both inflation gauges were below the Fed’s 2 percent inflation target. The Commerce Department also reports the personal consumption expenditure price index, which is tracked more closely by the Fed, only gained 1.3 percent in February from a year earlier.

Recent chatter about the Federal Reserve ending or scaling back its bond-purchasing programs appears to be premature by the latest inflation readings. Jon Hilsenrath, a writer from the Wall Street Journal known as the Fed Whisperer, also notes the likelihood of bond purchases continuing. Hilsenrath writes, “The latest reading on consumer prices could give the Federal Reserve a new reason to keep its easy-money policies intact, inflation shows signs of slowing.” He adds, “If inflation readings are low, the Fed might feel it has more leeway to try to stimulate economic growth.”

The race to debase currencies is taking place around the world. When converted to U.S. dollars, the four major central banks have expanded their balance sheets to more than $13 trillion, according to Hayman Capital. In comparison, the amount was $3 trillion ten years ago. Central banks now account for at least a quarter of all global gross domestic product, a sharp increase from only 10 percent in 2002.

While the Federal Reserve is currently purchasing $85 billion worth of bonds per month, the Bank of Japan announced earlier this month that it will inject more than $1 trillion into its economy to almost double its monetary base to 270 trillion yen. It also set a goal of 2 percent inflation for the first time. Due to a lack of growth, the European Central Bank also appears to be moving closer to another interest rate cut.

Although many would agree that the official inflation gauges underestimate real price increases for Americans, they offer an easy excuse for central banks to say their policies are not causing rapid inflation. The plunge in gold prices is simply the icing on the cake. When combined with a global economy that is still trying to recover from the financial crisis, massive central bank intervention appears to be here to stay.

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The rapid decline in gold started on Friday, with the price falling below $1,500 per ounce for the first time since July 2011. The weekend was not nearly long enough to stem the heavy liquidation process. On Monday, gold futures for the most active contract plunged $140.30 to close at $1,361.10 per ounce, its lowest level since February 2011. It was golds biggest one-day percentage drop since 1980, and the largest decline in dollar terms on record.

So-called goldbugs are receiving more heat than ever, despite the precious metal climbing higher for twelve consecutive years. Hedge-fund manager John Paulson is perhaps the most well-known gold investor. He is estimated to have lost almost $1 billion in just two trading days, according to Bloomberg. Paulson is known for correctly identifying and profiting heavily from the housing bubble, and is also the largest shareholder of the SPDR Gold Trust.

Paulson does not appear to be deterred by the latest decline in gold. After all, dramatic moves in precious metals are nothing new. At the beginning of the financial crisis in 2008, gold fell from $1,000 to $700 per ounce, while silver plunged from $21 to $9 per ounce. In 2006, gold stumbled from $725 to $570 per ounce and silver fell from $15 to $10 per ounce.

Federal governments have been printing money at an unprecedented rate creating demand for gold as an alternative currency for individual and institutional savers and central banks alike, John Reade, a partner and gold strategist at Paulson & Co., tells Bloomberg. While gold can be volatile in the short term and is going through one of its periodic adjustments, we believe the long-term trend of increasing demand for gold in lieu of paper is intact.

The biggest gold holders in the world…

In the bigger picture, Paulson is merely a blip on the radar when countries are considered. Heres a look at the ten biggest gold holders according to the World Gold Council, along with the percentage of reserves:

United States: 8,133.5 tonnes, 75.1 percent

Germany: 3,391.3 tonnes, 72.1 percent

IMF: 2,814 tonnes

Italy: 2,451.8 tonnes, 71.3 percent

France: 2,435.4 tonnes, 69.5 percent

China: 1,054.1 tonnes, 1.6 percent

Switzerland: 1,040.1 tonnes, 10.0 percent

Russia: 976.9 tonnes, 9.5 percent

Japan: 765.2 tonnes, 3.1 percent

Netherlands: 612.5 tonnes, 58.7 percent

According to the World Gold Councils latest report, central banks purchased 145 tonnes of gold in the fourth quarter of 2012, the highest quarterly haul since the sector became net buyers in 2009. For the entire year, central bank buying surged 17 percent to 534.6 tonnes, the highest annual total since 1964. In comparison, central banks bought 456.8 tonnes in 2011.

Here’s how the market traded Wednesday:

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