The World Gold Council (WGC) said demand in Europe for the precious metal rose sharply in the three months to June compared with the same quarter last year amid rapid buying of bullion, even as global demand fell by 12pc to a six-year low of 915 tonnes.
The increase in Europe was led by Germany, where sales of bars and coins rose 24pc to 24.1 tonnes in the second quarter. Demand in Austria and Switzerland rose sharply, according to the WGC's quarterly trends report.
"Fears of a potential Greek exit from the Eurozone saw retail investment in gold reach 47 tonnes, a rise of 19pc compared to last year," the report said.
Alistair Hewitt, head of market intelligence at the WGC, said the European bullion market had gone from being "non-existent" to becoming the "world's leading bar and coin market", pulling ahead of India in the first half of this year.
Spot gold prices fell to a five-year low last month on expectations that the US Federal Reserve will soon raise interest rates amid a strengthening economy. Gold is also considered a safe haven in times of market turbulence.
Mr Hewitt said a greater number of retail investors were buying smaller quantities of bullion rather than "Italian Job"-style gold bars, which became popular at the height of the European debt crisis in 2012.
"Many of the coins being bought are in smaller denominations, which we can contrast to the financial crisis, when there were larger denominations being bought. What this says is that many of the people who were looking to gain exposure to bar and coin are the smaller retail investors.
Individual investors have also piled into gold as a hedge against the European Central Bank's ultra-loose monetary policy. The ECB announced a €1.1 trillion bond buying programme in January which is expected to run at least until September 2016.
"People are looking to protect their wealth," said Mr Hewitt. "Wealth is eroded in many ways, it could be through high inflation, currency weakness, it could be that people want to hedge their risk. Gold plays a strong role in this.
"This year Greece has been front and centre in terms of the headlines and we’ve had the ECB engaged in unprecedented QE. Many investors they are thinking: how is this going to pan out? Greece and QE have had an impact on the euro, what can I do to protect my wealth? Well gold is part of the solution."
The WGC said a 25pc decline in demand in India and a 5pc drop in China accounted for about half of the overall fall. Gold in these markets is primarily used for jewellery.
Russian demand for gold 'voracious'
The report showed that demand for gold remained high among central banks, which were net purchasers for an 18th straight month in June.
Russia's central bank continued to lead the way – feeding its "voracious appetite" with net purchases of 36.8 tonnes during the quarter.
This brought its gold reserves to 1,275 tonnes, which now represent 13pc share of Russia's total reserves.
The Russian economy is suffering from its worst recession in six years following a halving of oil prices since last July and Western sanctions triggered by the country's annexation of Crimea.
The government has tripled its gold stocks in the last decade, which could provide Vladimir Putin, Russia's president, with ammunition to offset the sharp declines in the rouble.
Last month, Elvira Nabiullina, head of Russia's central bank, said the country planned to beef up its foreign exchange and gold stocks over the next few years.
"The indications are that Russia continues to view gold as a core reserve asset and it is likely that it's going to continue to add to its reserves," said Mr Hewitt.
"Russia will continue to be a significant player in the global gold market in particular in central bank demand."