Global physical gold demand slumped 29% in the first quarter to 781 mt, down from 1,097 mt in fourth quarter of 2015, the lowest level for six years, the latest survey by Gold Fields Mineral Services showed Wednesday.
The figure is 23.8% lower than 1,025 mt recorded in Q1 2015, the drop due primarily to weak Asian demand, according to the study.
Indian jewelery consumption was down 56.3% on the year, and 65% lower on the quarter, at 64.9 mt.
Chinese consumption was 27.3% lower on the year, down 6% on the quarter, to 130.6 mt.
Demand for physical gold in India and China, which account for over half the world's consumption, have struggled this year with rising international prices, gold up over 15% since January.
While a six-week national strike by Indian jewelers in March and April, in response to a new 1% excise duty on finished jewelery, has seen local demand completely stall recently.
Meanwhile, GFMS reported total gold supply of 1,091 mt in the first quarter, down 2% on the fourth quarter, but 4.2% higher than a year earlier, primarily due to higher scrap supply.
This resulted in a physical surplus of 310 mt, the highest for six years, up from a surplus of 19 mt in the fourth quarter and 22 mt in the first quarter of 2015.
However, including investment demand, which soared in the first quarter to 335 mt, GFMS reports a net deficit of 25 mt.
According to the study, inventory build in exchange-traded funds totaled 330 mt in the first quarter, the highest on record, compared with 36 mt a year earlier.
While exchange inventory build was 5 mt, up from withdrawals of 5 mt a year earlier.
Looking ahead, GFMS expects the gold price to ease soon, to below $1,200/oz.
"This correction will aid a recovery in demand from the East, and this will ensure that prices stay well above cyclical lows," the report said.
"Thereafter, gold prices are set to resume their bull run and trading around $1,300/oz towards year end."
The London Bullion Market Association Gold Price settled at $1,244.75/oz Wednesday morning, up $3.05 on Tuesday's close.
