Purchases of gold jewellery and investment in Saudi Arabia fell 16 per cent to 35.9 tonnes in the second quarter of the year on high and volatile bullion prices, the World Gold Council said.

But in terms of value, gold sales rose 14 per cent to hit SR4.84 billion ($1.3 billion) in the second quarter amid the global credit squeeze and inflationary pressures, the industry-funded group said.

’Volatility of world gold prices accompanied with high levels as well as the increase of inflation rates in the kingdom had the impact of decreasing demand in tonnage terms,’ WGC Gulf consultant and Saudi market general manager Bisher Diab said.

’(But) the region is not experiencing the same economic concerns as other parts of the world, and this positive economic outlook should enable the recent resilience in gold demand relative to other parts of the world to continue. Nevertheless, the level of demand will continue to depend on both the gold price and its volatility.’

Gold powered to a record of $1,030.80 an ounce on March 17 on record crude oil prices, fears of inflation and expectations of more rate cuts in the US, making the metal more attractive as an alternative investment.

It fell below $800 an ounce for the first time since December on Friday on the back of sluggish European economic data and as the dollar firmed against the euro.

Demand in the UAE followed a similar pattern to Saudi Arabia, falling 10.7pc to 26.6 tonnes in the second quarter.

The council did not give the value of the gold sales in the seven-member federation that includes Dubai, known as the ’City of Gold’.

The emirate is a long-established market for gold bullion and wholesale and retail jewellery, where the trade is fuelled by strong demand from the Arab world and India, the world’s top gold market.

Dubai’s second-quarter gold imports fell 2.1 per cent to 143 tonnes, compared with a year ago, and exports plummeted 15.8pc to 64 tonnes, figures from the Dubai Multi Commodities Centre (DMCC) showed last week.

Its total gold imports for the first half were down 4.7 per cent at 265 tonnes. Total exports during the same period rose 26.1 per cent to 179 tonnes, the DMCC said.

Declines in sales volume of gold jewellery sales and bullion imports earlier this year deepened anxiety among traders that the emirate may lose its lustre as a regional gold hub.

While demand for jewellery and investment declined in some countries in the region, buyers in Egypt showed strong interest in the precious metal driven by uncertainties in financial markets and rising inflation.

Second-quarter demand in the most populous Arab country was up 9.8pc at 14.6 tonnes.