Gold demand in major consumers China and India fell in the first quarter from the previous year's record levels, the World Gold Council said on Tuesday, though a drop in sales from bullion-backed investment funds kept overall demand steady.
Consumer gold demand in number one buyer China fell 18 percent to 263.2 tonnes, with Chinese demand for gold coins and bars down 55 percent in the first quarter, offset only partially by a 10 percent rise in jewellery offtake.
Indian consumer demand was down by just over a quarter to 190.3 tonnes, with gold jewellery consumption dropping 9 percent and coin and bar buying down 54 percent.
Overall gold consumption in the first quarter held steady at 1,074.5 tonnes, however, as net outflows from bullion-backed exchange-traded funds (ETFs), which last year reached record levels, dried up.
"In the first quarter of last year we saw quite a divergent market -- we saw gold flowing out of ETFs, and as the price fell you saw consumers around the world surge into the market and buy a lot of gold," the World Gold Council's Alistair Hewitt, one of the authors of the report, said.
"What we've seen in Q1 2014 is a move away from those extremes and the market is a bit more stable," he said. "While we've seen coin and bar demand come down, we've seen ETF outflows subside."
Outflows from exchange-traded funds, which last year reached 176.5 tonnes in the first quarter of 2013, dwindled to just 0.2 tonnes in the same period of this year, helping to balance the drop in Asian buying.
Overall coin and bar demand fell by just over a third to 282.5 tonnes, with the fall in Indian and Chinese consumption accounting for 70 percent of that decline.
In the full year the WGC expects Chinese gold demand, which reached a record 1,066 tonnes last year, to be between 1,000 and 1,100 tonnes, while it sees Indian gold demand at between 900-1,000 tonnes.
INDIAN DEMAND HURT
Indian demand has been hurt this year by government measures to reduce a record current account deficit by hiking import duties and tying import volumes to export.
Among other large consumers of physical gold, Turkey also saw gold demand fall 42 percent to 27.2 tonnes, while U.S. demand fell 13 percent to 33.1 tonnes, and demand in Thailand fell 56 percent to 24.5 tonnes.
"Flows of gold from Western vaults to satisfy the needs of Eastern consumers have slowed as global gold markets have slowly returned to a more 'normal' state of affairs," the report said.
"This is evidenced by a decline in the elevated price premiums seen throughout much of last year, notably in Shanghai and Istanbul."
Jewellery demand, the biggest segment of consumption, which tends to be price sensitive, rose 3 percent to 570.7 tonnes, chiefly due to increased buying in China, Japan, and the United Kingdom, the research showed.
The average spot gold price in the first quarter was 21 percent lower year on year, at $1,292 an ounce.
Meanwhile, central bank demand fell 6 percent to 122.4 tonnes, although the official sector -- once a heavy seller of gold -- remained a net buyer for a 13th straight quarter.