"Import figures in Dubai have almost been exploding in recent months," Rolf Schneebeli, the WGC's chief executive for the Gulf and the Indian subcontinent, told a news conference to present the gold mining industry group's quarterly survey.

"The indications are that smuggling, which has already increased into India, is continuing to do so," he added.

Dubai's gold imports for July rose to 31.341 tonnes from 24.393 tonnes a year earlier, also up from the 23.407 tonnes imported in June.

The Indian government decided in January to raise gold import customs duties, in a move which traders said would cut imports through official channels and encourage smugggling. More than 80 per cent of Dubai's gold re-exports go to the Indian subcontinent, the world's largest gold market.

TheWGC's "Gold Demand Trends" quarterly survey, released earlier on Wednesday, showed world demand rising 16 percent in the second quarter to a quarterly record high of 810 tonnes.

Total demand in the Middle East was up eight percent at 121 tonnes, with demand in the Gulf Arab states rising around seven percent, helped by a rise in global oil prices, improving regional economies and rising consumer confidence.

Schneebeli also said press reports last month that Iran was considering a plan to ease current restrictions on gold imports -- which could allow the import of up to two tonnes of gold bullion per month -- would mean good news for Dubai gold trade.

"We think this is the first step and more liberalisation will have to follow," Schneebeli said. "It is a huge market...total demand of 300 tonnes is feasible."

"It's clear when we do see an upswing in activities in Iran that Dubai, which is the natural supply country to Iran, will benefit a lot," he said.

The WGC survey said second quarter gold offtakein the United Arab Emirates, including the major regional trading centre of Dubai, rose eight percent, while Bahrain and Qatar saw increases of 24 percent and 100 percent respectively. Offtake in Saudi Arabia gained 13 percent.

Oman was steady in the second quarter, while demand in Kuwait declined by nine percent.