Global gold demand hit its lowest level in more than two years in the second quarter amid a weakening appetite for the yellow metal in India and China.

Demand in the period fell by 7% to 990 metric tons from the second quarter of 2011, according to the World Gold Council, an industry group. This is the lowest since the first quarter of 2010.

India and China, the world's heavyweight gold consumers that together accounted for 45% of second-quarter gold demand, both cut back their purchases of the precious metal amid concerns about growth, according to the council's quarterly report on the gold market, which was released Thursday.

The demand from exchange-traded funds that buy gold bars on behalf of their investors was flat, according to the report.

'When you have two out of the three pillars of gold demand wobbling, then you can have potential problems' in the form of lower prices, said Jon Nadler, senior analyst with at Montreal bulliondealer Kitco Metals Inc.

Gold futures for August delivery gained $12.40, or 0.8%, to settle at $1,616.10 a troy ounce on the Comex division of the New York Mercantile Exchange. Gold prices are up 3.2% on the year, but off 14.4% from a record $1,888.70 hit Aug. 22, 2011.

Excluding central banks and industrial users, gold demand was down 13% to 721.1 tons. Central banks continued their bullion buying spree as they diversify their reserves away from dollars and euros, purchasing 157.5 tons in the second quarter, a record.

India recaptured the crown as the world's top consumer in the second quarter, after losing out to China for two consecutive quarters. However, India's consumer demand for gold, a metric that combines sales of jewelry, coins, and bars, is down 38% to 181.3 metric tons.

The decline was attributed to the persistently weak rupee, which has kept gold in rupee terms near record highs despite declines in global gold prices.

'India will continue to be out of the market for a while,' said George Gero, senior vice president with RBC Wealth Management. He said the dry monsoon season has cut into farmers incomes, leaving many buyers with little disposable income.

There were bright spots in the demand data. Excluding India and China, global retailinvestment demand for gold, mostly from Europe, actually rose 16% to 195.2 metric tons.