Demand for gold in the Middle East fell 26 percent on the year during the first quarter of 2009 as economic uncertainly and high prices discouraged buyers, according to an industry report released on Wednesday.

The region bucked a global trend that saw demand increase as investors bought gold as a safe haven from the economic maelstrom.

In the Middle East, where jewellery demand makes up much more of the market than investment demand, consumers tightened their belts and bought less.

During the first quarter gold sales in the Middle East fell by 26 percent to 53.6 tonnes, the World Gold Council (WGC) said in its quarterly report.

Both jewellery and investment recorded similar percentage declines, with a fall of 26 percent to 49.5 tonnes and 28 percent to 4.1 tonnes respectively, it added.

'With 90 percent of total consumer demand in the region in the form of jewellery, this decline was largely down to the combination of the high gold price and a tightening of consumer spending,' said Rozanna Wozniak, investment research manager at WGC.

Gold prices averaged $908 an ounce during the first quarter of the year compared to an average of $794 during the last quarter of 2008, said Wozniak.

The high price had encouraged consumers to sell gold and for refineries to use scrap gold, she said.

Around 500 tonnes of scrap gold entered the Middle East market in the first quarter compared with around 300 tonnes for whole of last year, said Jeffrey Rhodes, the chief executive officer of INTL Commodities DMCC, an independent financial services firm based in Dubai this month.

The largest Arab economy Saudi Arabia was the only country in the region that saw jewellery demand rise, with an increase of 8 percent, she said.

The United Arab Emirates, the second largest Arab economy, saw demand volume for jewellery fall 33 percent during the first quarter of this year, while investment volume fell 15 percent.

'The total volume decline for the UAE during the first quarter was 31 percent and the volume was 16.6 tonnes,' said Wozniak.

Egypt's jewellery demand fell by 15 percent, less than the global average of 24 percent, she added.

'During the second quarter of the year we are expecting to see a recovery in gold demand as confidence returns to the market and investors hedge their funds in the metal,' said Wozniak.

On a global level, first quarter demand for gold jumped 38 percent year-over-year to 1,015.5 tonnes as investor buying more than offset depressed jewellery consumption and industrial usage, the WGC report added.-Reuters