The two Asian countries will continue to provide the main thrust of overall growth in demand, particularly for gold jewelry, for the remainder of the year, according to the World Gold Council's Gold Demand Trends report for Q2, 2010 released on Wednesday.

The Middle East region had a mixed quarter. "The Saudi market, one of the Middle East's main markets, performed well in the second quarter with a five percent rise in gold jewelry demand as the improved domestic economic conditions boosted consumption," said Ajay Mitra, managing director, India, Middle East and Turkey at the WGC.

The other Gulf countries underperformed markedly in the second quarter. In the United Arab Emirates, the Akshaya Trithiya festival attracted substantial interest, but demand tailed off 15 percent in response to high and rising prices during the second half of the quarter.

"Pace of gold demand recovery will be gradual depending on the positive signs of the economic recovery," Mitra said.

Across much of the Middle East region, it appears the expatriate population reacted most strongly to the higher price level, while in Saudi Arabia the local population were less price-sensitive and, indeed, seemed to be buying into the rising price in anticipation of further gains, the WGC report said.

Mitra, who visited Saudi Arabia recently with WGC Chief Executive Officer Aram Shishmanian to assess the gold market, said that a number of jewelers in the Kingdom noticed consumers buy small quantities of gold more frequently, usually followed by the purchase of a large amount once a year.

In Egypt, gold demand was down 15 percent. In Turkey, gold demand dropped 20 percent to 16.2 tons as local prices surged 28 percent during the quarter, reaching record levels in June, the WGC said.

Mitra said total gold demand in Q2 rose by 36 percent to 1,050 tons, largely reflecting strong gold investment demand compared to the second quarter of 2009. In value terms, demand increased by 77 percent to $40.4 billion.

Investment demand was the strongest performing segment in the second quarter, posting a rise of 118 percent to 534.4 tons, compared with 245.4 tons in Q2, 2009.

The largest contribution to this rise came from the ETF (exchanged traded fund) segment of investment demand, which grew by 414 percent to 291.3 tons, the second highest quarter on record, he added.

Physical gold bar demand, which largely covers the non-Western markets, rose 29 percent from Q2, 2009 to 96.3 tons.

The WGC report said global jewelry demand remained robust in the second quarter. In the face of surging price levels, consumption totaled 408.7 tons, just five percent below year-earlier levels.

Gold jewelry demand in India, the largest jewelry market, was little changed from year-earlier levels, down just two percent at 123.0 tons. In local currency terms, this translates to a 20 percent increase in the value of demand to Rs.216 billion.

With the return of demand for consumer electronics, industrial demand grew by 14 percent to 107.2 tons, compared to Q2, 2009, the report added.

During the second quarter, the average gold price moved into higher trading ranges in most currencies. The US dollar gold price surged to a new high of $1,261 per ounce on June 28 (on the London fix), above May's record of $1,237.50 per ounce.

On the London Bullion Market, the price of gold was trading at $1,237.90 per ounce on Wednesday.

The WGC report said supply of gold in the second quarter reached 1,131.4 tons, a rise of 17 percent from the second quarter of 2009.