At 56.5 tonnes, investment demand was less than half the level in Q2 2011. Indian jewellery demand also experienced a noticeable drop to 124.8 tonnes, down 30% year-on-year from 179.5 tonnes.

"These marked declines were partly a reflection of the strength of demand in Q2 2011 and also driven by Indian investors taking advantage of the weak rupee against the US dollar. The fluctuations in the exchange rate and the rise in the gold price to records of around Rs 30,000/10g in June were compounded by domestic inflation and concerns over a weak monsoon season," the World Gold Council has stated.

China's investment and jewellery demand was 144.9 tonnes, down 7% from 156.6 tonnes in the same quarter last year. Investment demand fell by 4% year-on-year to 51.1 tonnes as Chinese investors exercised restraint in response to the lack of direction exhibited by the gold price. The lack of sustained upward momentum in the gold price and the slowing of domestic GDP also discouraged consumers from buying gold jewellery, which saw a 9% year-on-year decline to 93.8t.

The ongoing sovereign debt crisis in the Eurozone underpinned European investors' enduring conviction in gold's capital preservation properties. Demand for bars and coins from retail investors posted a 15% year-on-year increase to 77.6 tonnes; 19% higher than the five year quarterly average of 65.2 tonnes.

Official sector demand in the quarter reached a record high of 157.5 tonnes, more than double the level of Q2 2011 and accounting for 16% of overall global demand. Central banks that bolstered their holdings during the period included the National Bank of Kazakhstan, and the central banks of the Philippines, Russia and Ukraine.

Click here for WGC report.

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