You’ve got to give the World Gold Council a lot of credit. It was handed lemons, but made a valiant effort to turn them into lemonade. The introduction to its second-quarter trend update (published Thursday) read quite palatably:

“Q2 gold demand totaled 856.3 tonnes, worth US$39bn. Lower prices generated another surge in quarterly jewelry demand, most notably in India and China. Record quarterly investment in gold bars and coins was countered by sizeable outflows from ETFs as western investors reacted to a seemingly more positive outlook for the US economy and an eventual tapering of quantitative easing.”

Just another ho-hum quarter, right? Ehhh … no.

Just as a reminder, Q2 of this year was the worst quarter ever for gold, in terms of its price. Ever. The world’s favorite precious metal lost nearly 23% of its value between the beginning of April and the end of June, with demand falling to a four-year low.

We just didn’t know exactly why until we got the specific numbers.

The Good

As far as the commercial and consumer uses of it go, gold’s usual buyers took advantage of its plunging price. Jewelry makers — the industry that uses more gold than any other industry — bought up 575 tonnes of the stuff last quarter, vs. only 421 tonnes in the second quarter of 2012. That’s the most that jewelers have snatched up since the 694 tonnes they bought in the third quarter of 2008, when gold prices averaged only $919 per ounce.

And that wasn’t even the most amazing source of increase in demand.

The amount of gold that was sold in the form of bars and coins soared from Q2 2012’s 286 tonnes and Q1 2013’s 378 tonnes to a hefty 575 tonnes in the second quarter of this year — a record level of usage.

It’s also an unusual shift in ownership preferences.

Whereas ETFs, gold funds and futures were the trade of choice accompanying gold’s meteoric rise through late 2011, the gold bugs now prefer to hold the stuff in its raw physical form. Perhaps these owners fear the risk of mere promissory ownership, and would rather hold something they can keep in a safe-deposit box. Maybe these are the buyers who missed gold mania a few years ago, and have since been convinced by the resurgence of TV commercials touting the value of physical gold to “get in now while prices are low.” Maybe Q2’s buyers are the folks who want to (and this isn’t entirely a joke) keep it safely tucked away in an apocalypse bunker.

Whatever the case, those buyers helped stave off what could have otherwise been a disastrous quarter for gold.

The Bad

While the consumption of gold for jewelry, bars, coins and technology was solid in Q2, it didn’t offset the stunning amount of gold that was liquidated by ETFs like the SPDR Gold Shares (GLD) or the iShares Gold Trust (IAU).

Remember in the first quarter how we were lamenting the fact the ETF industry was forced to sell 177 tonnes of gold to cover redemptions and liquidations? Well, that was nothing compared to the second quarter’s ETF outflow. Last quarter, fund managers sold (on a net basis) 400 tonnes of it to cover liquidations and redemptions.

Government and central banks dialed down their purchases to only 50 tonnes of gold in the second quarter. That was less than half the amount they bought in the first quarter of the year, and about a third the amount the world’s government banks were buying every quarter when their interest was all the buzz in 2012.

The Bottom Line

Fans and supporters of gold — as well as owners of it — will be quick to argue that things could have been worse in Q2, and that the interest in physical ownership of gold is a sign of demand still being strong. But that’s a desperate argument.

While the data doesn’t exist to verify the idea, the shift in favor of owning physical gold is likely largely being spurred by fairly unsophisticated retail investors … perhaps newcomers to any type of investment market. When it’s all said and done, though, actually holding gold in your hand is impractical as well as illiquid. Not many large and experienced investors would be willing to bother.

On the other hand, there’s plenty of evidence that institutional money is getting out of gold, possibly for the long haul. John Paulson, for instance, cut his fund’s SPDR Gold Shares position in half last quarter, down to about 10 million shares. Given that he’s been a staunch gold bull since the fourth quarter of 2011, his exit speaks volumes, and might well be an indication of how other professionals are thinking about gold now.

Central banks seemed to agree, whittling their interest down considerably last quarter.

Even if retail investors were able to offset waning institutional sales of gold and weak demand from government banks, the looming end to the Fed’s QE program will quell inflationary pressures before they were ever allowed to materialize; there’s no need to own gold in a non-inflationary environment. Strong demand from the jewelry industry can’t last forever, either.

Point being, the last of the little guys appear to be wading in while the smart money seems to be wading out. That doesn’t bode well for gold’s foreseeable future.

As of this writing, James Brumley did not hold a position in any of the aforementioned securities.