The rupee has also lost 10% in value since its peak in February as foreign investors pulled out of Indian markets on uncertainties over taxation and a bleak global economic scenario. India is one of the largest importers of the yellow metal and a depreciating rupee pushes prices of gold higher. Data showed that due to the weaker rupee, average local prices had increased 35% from last year.

Also, the strike called on Mar 17 by the All India Gems & Jewellery Trade Federation protesting the 1% hike in excise duty on unbranded jewellery and doubling of customs duty gold imports proposed in the Union Budget also likely hit demand.

The strike was called off on Apr 6 after the government assured jewelers that their demands would be considered. Finance Minister Pranab Mukherjee then rolled back the excise duty on branded and unbranded precious metal jewellery.

"It is likely that this impact will reverse to some extent in the second quarter, as the supply chain readjusts following the three-week shutdown," said the WGC.

China retained its position as the top consumer of gold for the second consecutive quarter with its gold consumer demand up 10% to 255.2 tonnes, beating India's 207.6 tonnes, which was down 29% on year.

China's physical gold bars and coins demand climbed 13% on year to a quarterly record of 98.6 tonnes, while jewellery demand rose 8% to 156.6 tonnes and accounted for 30% of the world's gold jewellery market, data from the council showed.

"Further growth is expected (in China): investors remain wary of high inflation rates; and property market restrictions continue to drive demand for gold among investors seeking access to real assets," said the WGC in its quarterly Gold Demand Trends report.

Globally, gold demand fell 5% on year to 1,097.6 tonnes in the quarter, as jewellery and technology sectors bought less gold with average prices up 22% from a year earlier, but investment demand and central bank buying helped cushion the fall, WGC said. Global jewelry demand slipped 6.3% to 519.8 tonnes due to a dip in India’s demand.

The WGC report showed that global gold investment demand grew 13% on year to 389.3 tonnes, as exchange-traded products recorded a 51.4-tonne inflow while demand in bars and coins recorded a 17% decrease from a year earlier.

Central banks bought 80.8 tonnes in the first quarter, down from 137 tonnes a year earlier, the council said.

China, central banks and ETFs underpin demand for gold: WGC