With investors flocking to the barbarous relic, the $64,000 question is: Is gold in a bubble or can it go higher? What really affects its price? Who’s doing all the buying? How’s it being purchased? And, are gold stocks still a “Buy?”

Investors contemplating an investment in gold at this point really need to understand the answers to all of those questions before making a purchasing decision.

Let’s turn to the World Gold Council (WGC) for some answers. It just released its latest quarterly report, and the Council reveals some startling information once you dig in… especially how India’s weather affects global demand for the metal.

How are investors buying gold?

According to the WGC, here’s the breakdown of the second quarter 2011 (year-over-year) global demand growth for gold:

As you can see from the above numbers, investors are flocking to physical metal and away from ETFs. They want to hide it under the mattress or bury it in the backyard.

The growth in coin sales in the third quarter seems to have reversed itself from the second quarter. The WGC reports strong demand (up 13 percent) for bars so far in the third quarter.

Gold mining stocks… mostly ho-hum over the last year

What about the large gold mining stocks? How are they doing? It’s a mixed bag. But in general, not nearly as well as the metal itself, which is up nearly 50 percent in the last 12 months.

• Yamana Gold, Inc. (NYSE: AUY) is the only gold stock of the major producers that recently hit a new 52-week high.

• Goldcorp, Inc. (NYSE: GG) and Gold Fields Limited (NYSE: GFI) actually were to the downside on last Thursday’s big rally in the price of gold.

• If you bought Newmont Mining Corporation (NYSE: NEM) a year ago, you’d be about breakeven on your investment.

Marcus Grubb, Director for Managing Investments at the WGC, said on CNBC last week that with increasing demand from China and India, and increasing demand for gold jewelry, ”We don’t believe that gold is in a bubble.”

Global growth in consumer demand for gold

According to WGC, here’s the growth in consumer demand for jewelry, bars and coins for the second quarter 2011 (year-over-year) for the four largest buyers:

As you can see, China and India are the two hottest markets for gold. Demand from those two countries reflects the state of their economies, says Grubb. China and India both have strong economic growth, increasing household incomes and increasing household wealth.

Just the opposite is true for the United States and Europe, where economic growth is very slow. Both Europe and America are poised on the verge of second recessions, and both are struggling with personal and sovereign debt issues.

Women in India, as a group, are the biggest buyers of gold in the world right now, according to the WGC. The WGC estimates that Indian women as a group own more gold than anyone – about 18,000 tons – mostly in the form of jewelry.

To put that number in perspective, the U.S. Federal Reserve only owns about 8,000 tons.

What does the weather in India have to do with gold prices?

A strong monsoon season in India actually helps the price of gold go up. To understand why, you first have to understand India’s love for the yellow metal.

You see, India is one of the world’s largest importers and consumers of gold bullion, mostly in the form of jewelry. Roughly 70 percent of India’s annual gold purchases are made by rural farmers.

Much of that is for wedding gifts. It’s estimated by the Bombay Bullion Association that about 300 tons of gold per year are purchased as wedding gifts in India.

So when a healthy monsoon season rewards Indian farmers with bountiful crops, gold purchases soar. They invest almost exclusively in gold and silver, in the belief that the prices will always go up.

So far, they seem to be right on the money.

Regardless of how you decide to invest in gold, if at all, do your homework. If you invest in coins or bullion, use a reputable dealer.

Investors wanting to get into gold at this point should be prepared for a possible five- to 10-percent pullback in the price, given its recent run-up. And check out the long-range forecast for India while you’re at it…