Gold demand which dropped in the second quarter of this year is expected to strengthen by the end of 2011, driven by robust jewelry consumption in India and China and recovery in investment demand, senior World Gold Council (WGC) officials said on Friday.

Overall gold demand fell 17 percent year-on-year in the three months from April to June to 919.8 tonnes as a sharp drop in investment demand offset a tentative recovery in jewelry buying, the gold mining industry-funded WGC said in August.

In the third quarter, demand appears to have started to start recover with increasing concerns about weakness of major global economies prompting investors to buy gold as safe haven while Asian consumers continued to splash out on jewelry, the WGC officials told Reuters.

In the third quarter, we are going to see strong investment numbers, because of the European crisis, the debt downgrade in the United States and poor economic figures coming from the United States which have created a concern in investors' mind that we may be heading back to another recession, WGC Managing Director for Investment Marcus Grubb said.

It sends liquidity into gold, Grubb said in a telephone interview.

David Lamb, WGC managing director for jewelry, said economic gloom will hit gold jewelry appetites in western markets, but jewelry buying in India and China -- which together account for 55 percent of global jewelry demand -- remains very strong.

If you add that up, because of the biggest and most dynamic move (in gold jewelry demand) eastwards, we think this year will show an overall positive trend, Lamb said.

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