Global demand for gold reached $20.9 billion in the first quarter of 2008, an increase of 20 percent year-over-year the World Gold Council (WGC) reported. However, the WGC noted, record high prices led to a decline in the volume of demand, which totaled 701 tons, a decrease of 16 percent over 2007 and the lowest quarterly figure in five years.

The data shows that the impact of highly volatile gold prices in the first quarter affected the physical buying markets of gold jewelry and coins and bars particularly hard. Jewelry demand dropped 21 percent on a year-over-year basis to 445.4 tons, the lowest quarterly level since the early 1990s.

Net retail investment demand dropped by 35 percent to 72.7 tons.

Jewelry demand in India, gold’s largest market and also the most price-sensitive market, totaled 71 tons, half the level of 2007. Overall gold demand in the U.S. fell 15 percent.

However, not all of the news from the quarter was negative. Overall demand for gold in China and Russia, two of the most important and fastest growing economies, was up 15 and 9 percent respectively, driven by increasing consumer wealth and ease of access to attractive jewelry and retail investment products.

WGC CEO James Burton said, “The first quarter of 2008 started as the previous year finished with high and volatile prices. This has created tough trading conditions for large parts of the gold market, but I am pleased to see how well gold has fought for, and won, share of consumers’ discretionary spending.

“Early indications are that jewelry demand is likely to remain muted during the second quarter, although there has been positive news from the Indian Akshaya Thritiya festival and the Indian and Middle East wedding seasons, which are expected to generate additional purchasing.