Demand for gold dropped 12% year-on-year in the second quarter, primarily due to a large decline in demand for jewellery in India and China – the biggest consumers of the precious metal.
The World Gold Council (WGC) said gold demand fell 12% to a six-year low of 914.9 tonnes in the second quarter, while supply reduced by 5% year-on-year.
On a year-to-date basis, gold demand fell by a more modest 6%.
In volume terms, the jewellery sector faced the biggest decline in demand in the second quarter, falling by 14% or 81.1 tonnes to 513.5 tonnes. The fall was chiefly due to weakness in key markets of India and China, where demand dropped by 25% and 3% as compared to last year, respectively.
In India, the decline was largely due to unseasonal rains that damaged crops in the first quarter, impacting the income of the country's rural population. In addition, a relative dearth of auspicious days for marriages in June and July hit wedding-related demand in the second quarter.
Meanwhile, the Chinese demand was hurt by continued economic slowdown and severe fluctuations in the domestic stock market that impacted consumer sentiment.
Moreover, gold investment demand fell by 11% to 178.5 tonnes, and demand from central banks and other institutions declined by 13% to 137.4 tonnes. Demand from the technology sector also fell by 1% to 85.5 tonnes.
In the second quarter, European investors spent more to invest in gold, as the Greek debt crisis re-emerged.
Looking ahead, the WGC said "there are reasons for cautious optimism" for the remainder of 2015, given the recent drop in gold prices and the Chinese central bank's announcement to increase its gold reserves.
"From the perspective of consumers in price-sensitive markets, falls in the gold price can be a strong buy signal," said the council.
"Lower prices in markets across Asia and the Middle East often trigger purchases and interest has already been reported across a number of these."
The council added that the People's Bank of China's announcement is supportive for the global gold market, as it "reinforces gold's position as a key reserve asset in helping central banks to diversify away from the US dollar."