Due to the surge in the prices of yellow metal in 2006, India, the world's largest manufacturer, witnessed a 90-tonne drop in demand for gold jewellery, London-based precious metal consultancy GFMS said in a report.

"India, Turkey and Italy accounted for half of the gross decline in total jewellery demand last year," the report said.

GFMS said price developments would remain a key factor in determining jewellery fabrication in the year ahead.

World jewellery fabrication demand fell 16 per cent to a 15-year low of 2,280 tonnes in 2006, GFMS said, adding the decline this year is unlikely to match the fall seen last year.

Globally, gold demand was affected due to a shift toward lower gold weights and more gem-set ornaments. This led to the fall in the jewellery segment, GFMS executive chairman Philip Klapwijk said.

"The chief architect of the decline was developments in the gold price, not only in terms of the absolute level but also the degree of price volatility," GFMS said on the release of its Gold Survey 2007.

In India, the price volatility induced a more than 200-tonne year-on-year fall in the first six months last year though it recovered in the second half as consumers adjusted to higher prices.

Interestingly, India may witness competition from China, which has emerged as the second largest manufacturer of gold ornaments in 2006.