Global demand for gold shrunk 7 percent year-on-year in the second quarter of this year to 990 tons, the lowest level in more than two years, mainly due to a fall in buying from China and India, the world's two biggest gold consumers, the World Gold Council (WGC), a producer-funded council, said Thursday.

In terms of value, world gold demand equaled $51.2 billion during the quarter, down from $51.6 billion in the same period last year, while the average gold price climbed 7 percent to $1,609.49 per ounce over the period, the WGC wrote in its quarterly Gold Demand Trends report Thursday.

"India and China continued to dominate global consumer demand, accounting for a combined 45 percent of total second quarter jewelry, bar and coin demand," the report said.

Jewelry and investment demand, which accounted for 42 percent and 30 percent of global gold demand respectively from April to June, dropped considerably. According to the WGC, while demand in the jewelry sector went down 15 percent in the second quarter, jewelry demand excluding the Indian and Chinese markets only declined 4 percent. Also, while worldwide investment demand slumped 23 percent, excluding India and China, demand gained by 16 percent.

In China, the slowing economy and the lack of a clear trend in gold prices were the major reasons that pushed the country's jewelry and investment demand down 9 percent and 4 percent respectively to 93.8 tons and 51.1 tons in the second quarter.

"Chinese consumers prefer to buy into an established trend … and the period of consolidation during the second quarter therefore acted as a deterrent to gold demand," the report explained.

Nevertheless, Jammy Chan, head of the WGC's Chinese investment department, still expressed optimism about the gold market in China.

"As China's inflation cools, more monetary easing measures are expected, thus the country's gold consumption will surely grow in the future," he said at a press conference in Shanghai Thursday.

Sun Yonggang, an analyst from Everbright Futures, was skeptical of this view and said that an upswing in China's gold demand in the third quarter was far from a sure thing.

"Despite widespread expectations of monetary easing, there hasn't been any loosening so far, and as the latest macroeconomic indicators - such as July's purchasing managers index (PMI) and new loans - all point to slowing economic growth, it is hard to say whether gold consumption will recover or not in the coming months," Sun said.