SAN FRANCISCO (MarketWatch) — Investors didn’t buy enough physical gold to offset outflows from gold-exchanged traded funds in the first quarter, but total ETF gold holdings were still higher than a year ago, and demand for jewelry, bars and coins grew a lot thanks to China and India, a report from the World Gold Council released Thursday shows.

The report helps shed light on demand during the period just before April’s plunge in gold-futures prices and steep outflows from gold ETFs.

Gold plunges on tame inflation

In the three months covering January through March, gold futures lost nearly 5%, while shares in the largest gold-backed ETF in the U.S., the SPDR Gold Trust GLD, -0.54% , fell 4.7%. In the month of April, gold futures lost 7.8% while GLD shares fell 7.6%.

“In the first quarter of this year, we saw the first increase in demand for gold jewelry in the U.S. market in seven years,” said Jason Toussaint, chief executive officer of World Gold Trust Services, the sponsor of the SPDR Gold Trust. WGTS is a subsidiary of the World Gold Council.

Total jewelry demand climbed 12% in the first quarter, compared with the same time a year ago, according to the World Gold Council’s latest Gold Demand Trends report for the first quarter of 2013.

Jewelry demand from China was up 19% to a record 185 metric tons. Jewelry demand from India rose 15% and the U.S. showed a significant increase in the first quarter, of 6%, for the first time since 2005.

The rise in U.S. gold jewelry demand is “indicative of improved consumer sentiment [and] growing discretionary income as the U.S. economy continues to heal, and recognition of the intrinsic value of owning gold,” Toussaint said in an email interview.

“This increase occurred prior to the price drop that we saw in April, showing also that the interest in purchasing physical gold including jewelry, bars and coins, at higher prices than we’re currently seeing, was already building,” he said.

Meanwhile, bar and coin sales, year-on-year, rose 22% in China, 52% in India and 43% in the United States, the WGC report said.

And central bank demand for gold reached 109 metric tons in the first quarter, topping 100 metric tons for a seventh straight quarter.

ETFs hurt demand

Before April’s gold selloff, outflows from ETFs were already obvious, accounting for the bulk of the drop in world gold demand, data from the report show.

The significant outflows of ETF gold holdings in the quarter were due to speculative investors taking profits in the wake of high prices seen in the second half of 2012, said Toussaint.

Total world gold demand was 963 metric tons in the first quarter, down 13% from the same time a year ago and 19% below the fourth quarter of 2012, according to the WGC report.

Gold held by gold-backed ETFs fell by 177 metric tons for the quarter.

In total, however, the amount of gold held by ETFs was still 2% higher, at 2,514 metric tons, in the first quarter compared with the same period a year ago, Toussaint said, emphasizing the fact that ETFs represent “only a small part of the investment story” — around 6% of total gold demand in 2012.

Besides, the fall in gold ETF holdings was “balanced” by 378 metric tons of investment in bars and coins — an increase of 10% on the same period last year, and up 12% compared with the fourth quarter of last year, according to Marcus Grubb, managing director of investment at the World Gold Council.

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The April drop in gold prices, fueled by “non-physical moves in the market, proved to be the catalyst for a surge of buying that has left many retailers short of stock and refineries introducing waiting lists for deliveries,” Grubb said in a statement.

He pointed out that jewelry and consumption in the technology sector still make up 81% of the market.

“What these figures show is that even before the events in April, the fundamentals of the gold market remain robust with growing demand in India and China, central banks consistently adding gold to their reserves and strong buying of investment products such as gold bars and coins,” he said.