Looking at a breakdown of the Q1 figures is more concerning than...

Looking at a breakdown of the Q1 figures is more concerning than the headline 7% drop in demand Y-on-Y. Markets where gold is consumed, or at least semi-permanently removed from the market (e.g. jewellery, fabrication, "official sector") all show declines. Investment demand (where demand may be readily reversed) is the only segment that is rising - thanks mainly to ETF inflows:

"Net inflows in ETF's Q1 2012 totalled 51.4 tonne vs net outflows of 62.1 tonne in Q1 2011."

Without this 113.5 t contribution the Y on Y change would have been -16.3%. ETF inflows are contingent on perceptions of improving performance, may not be so strong in current quarter.

Also institutional investment flows "less negative":

"OTC investment and stock flows were very moderately negative in the first quarter, showing net outflows of 18.6 tonne compared with considerably larger net outflows of 151.1 tonne in the same period last year, the report said."

China is the only real geographical bright spot, surpassing India for the first time.

http://www.gold.org/investment/research/regular_reports/gold_demand_trends/

http://business-standard.com/india/news/global-gold-q1-demand-down-5-value16/165292/on
http://business-standard.com/india/news/indias-gold-demand-down-29-vs-q1-2011-wgc/165309/on
http://business-standard.com/india/news/china%5Cs-q1-gold-demand-hits-record-high255-tonne-wgc/165286/on