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 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.

We'd still see, I think, some profit taking and some caution there, although less so than in the first quarter. So, I think it should be a better quarter for that.

Despite falls in investment demand in the first quarter, instability in the equities markets, uncertainties in the dollar's direction and rising inflation spurred buying on exchange-traded funds, said the WGC.

Demand for gold ETFs jumped 100 percent to 73 tonnes in the first quarter of 2008, representing $2.2 billion in dollar terms.

Investment demand in the first few weeks of the second quarter has been mixed with retail investors in traditional bars and coins encouraged by the pullback in price, while ETFs have witnessed an outflow, said James Burton, chief executive of the WGC.

However, I am confident that the general investment environment remains positive.

In other sectors, industrial and dental demand declined 5 percent to 110.3 tonnes in response to the deteriorating U.S. economy and a slowing in demand for consumer electronics.

But in value terms, demand was equivalent to $3.2 billion, a rise of 35 percent.

The supply of gold rose 6 percent in the first quarter of 2008 due to an increase in scrap supply, while mine output was little changed at 593 tonnes.

Central bank sales were 8 percent higher than in the first quarter of 2007.

Metals consultancy GFMS compiled the data for the World Gold Council. (Editing by Ben Tan)

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