Gold Q1 demand falls 16 pct versus year ago - WGC

By Lewa Pardomuan

LONDON, May 20 (Reuters) - Global demand for gold fell 16 percent year-on-year to 701 tonnes in the first quarter of 2008, the lowest quarterly figure in five years, as bullion rallied to hit a record above $1,000 an ounce, the World Gold Council said on Tuesday.

But in terms of value, demand for gold rose 20 percent to touch $20.9 billion in the first quarter of 2008 amid the global credit squeeze and inflationary pressures, the industry-funded group said in its Gold Demand Trends report.

Purchases for jewellery and investment fell 50 percent in main consumer India due to high prices, but purchases from China and Russia rose 15 and 9 percent, respectively, in the first quarter of 2008.

"The Chinese typically are not afraid of buying on a rising market. There's a strong investment element to a lot of gold buying," Jill Leyland, economic adviser to the WGC, told Reuters.

"We have seen some really huge swings in Indian demand recently. I would think in general demand will still be muted. I would still expect it to fall year-on-year in India in the second quarter, but a smaller fall than in the first quarter."

Gold XAU= powered to a record of $1,030.80 an ounce on March 17 on record-high crude oil, which raised fears of inflation and expectations of more rate cuts in the United States, making the metal more attractive as an alternative investment. India's jewellery and investment demand stood at 71 tonnes and 31 tonnes, respectively, in the first quarter of 2008. Both were half the levels of the year-earlier quarter.

Global jewellery demand fell 21 percent year-on-year to 445.4 tonnes, the lowest quarterly level since the early 1990s, while net retail investment demand dropped 35 percent to 72.7 tonnes.

"I think the bars and coins market will probably behave the same as jewellery," said Leyland, referring to the global outlook for the second quarter.