"Investors in some markets had been expecting a further price dip to provide a good buying opportunity in the first quarter. The improvement in the U.S. dollar price throughout the quarter instead prompted many participants to remain on the sidelines - or, in some cases, to take profits on their holdings," it added.
WGC also attributed the sharp decline to the high base - as the first three months of 2013 marked a record first quarter for demand.
'Fundamentals remain in place'
Overall demand, however, held steady at 1,074.5 tonnes, virtually unchanged from levels seen in the same period last year, as modest jewelry demand growth outweighed reductions in coin and bar demand and central bank purchases.
Global jewelry demand, the most significant component of overall demand, totaled 571 tonnes, a 3 percent on-year rise.
China, which became the largest global market for gold demand in 2013, saw a 10 percent rise in demand for jewelry.
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Central banks remained net buyers of gold, however their purchases fell 6 percent on-year to 122 tonnes.
"[The first quarter] signals a return to the long-term average patterns of demand...It is clear that the longer-term underpinnings of the gold market - such as jewelry demand in Asia - remain firmly in place demonstrating the continuing resilience of the gold market and the unique nature of gold as an asset class, rebalancing to reflect demand," said Marcus Grubb, managing director, investment strategy, at the World Gold Council.
ETF outflows slow to a halt
In the investment space, exchange traded fund (ETF) outflows slowed substantially to 0.2 tonnes, compared with outflows of 176.5 tonnes in the same period last year.
Outflows slowed sharply during January and reversed in February to generate a positive monthly inflow of around 12 tonnes, the first monthly increase in holdings since December 2012, as escalating geopolitical tensions raised gold's profile as a risk diversifier.
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March saw similar inflows, although towards month-end attention turned back to the U.S. economic recovery and the timing of possible interest rate rises.