LONDON (Reuters) - Global gold demand eased 1 percent in the first quarter, an industry report showed on Thursday, as a drop in Chinese jewellery demand narrowly outweighed a recovery in Indian buying and Western appetite for bullion-backed funds.
In its Gold Demand Trends report for the period, the World Gold Council said Chinese jewellery buying fell 10 percent in the first three months of the year.
That was sparked by uncertainty over the direction of prices, as well as strength in Chinese equities and fears of a slowdown in Chinese growth, it said.
"The rampant strength of the equity market is clearly diverting attention away from gold," WGC head of market intelligence Alistair Hewitt said. Over the course of the year, Chinese gold demand is still expected to grow, he said, to between 900 and 1,000 tonnes, a similar level to that forecast in India.
Despite the drop, China was the world's biggest consumer of gold jewellery, coins and bars in the first quarter, the WGC figures showed, with offtake of 272.9 tonnes.
India, historically the world's number one gold buyer, saw a 22 percent rise in jewellery demand in that period, though demand for bars and coins fell 6 percent. Last year the market was curbed by official restrictions on imports, including a rule that 20 percent of imported gold had to be re-exported.
"We've seen a nice percentage element of growth, but we're probably just getting back to where India's gold market has been over the last five years," Hewitt said.
"More importantly, looking ahead, India's gold market is returning to a more normal environment, as opposed to the volatility that it experienced as the government implemented restrictive policies like the 80:20 rule."
Overall demand for jewellery, the biggest segment of gold demand, fell 3 percent in the first quarter, with consumption also declining in Hong Kong, the Middle East, Turkey and Russia.
Partly offsetting the impact of that, gold-backed exchange-traded funds -- investment vehicles which issue securities backed by physical metal -- saw their first quarterly inflow since late 2012 in the first quarter, of 25.7 tonnes.
That helped lead to a 4 percent rise in investment demand, despite a drop in buying of small investment products like coins and bars, consumption of which fell 10 percent.
The drop was particularly noticeable in Russia, Turkey, and the Middle East, although Chinese purchases of these products edged higher.
Central bank gold demand was almost unchanged at 119.4 tonnes. On the supply side of the market, gold recycling fell 3 percent while mined gold output edged up 2 percent year on year.
Reporting by Jan Harvey; Editing by Mark Heinrich