Even as inflows into exchange-traded funds (ETFs) continued steadily throughout the year, it was 202.8 tonne, around one-third of 2016's inflows, which saw exceptional levels, it said.
Similarly, the full-year bar and coin demand fell by 2 per cent as the US retail investment dropped sharply.
Central bank demand also dipped by 5 per cent during the year by 371 tonne from 390 tonne in 2016, with Turkey joining Russia and Kazakhstan as the most prominent buyers.
Bar investment was broadly stable, while coin investment slid by 10 per cent.
Overall, the bar and coin demand fell 2 per cent on a sharp drop in US retail investment to 1,029.2 tonne in 2017 from 1,048.7 in 2016.
However, the year saw a recovery in both jewellery and technology demand, which made modest gains compared with 2016, the report said.
The total jewellery demand grew by 4 per cent (82 tonne) to 2,136 tonne from 2,054 tonne in the same period last year.
Last year saw the first annual increase in jewellery demand since 2013, but the sector remained weak in a historical context, it said.
Similarly, demand in the technology sector increased by 3 per cent to 333 tonne from 323 tonne in 2016.
"It's not surprising to see overall gold demand down given the backdrop of monetary policy tightening and strong equity markets in 2017, but the market is not in bad shape. The US dollar gold price was up 13 per cent and institutional investors, especially in Europe, continued to add gold to their portfolios as a hedge against frothy asset prices and geopolitical uncertainty," WGC Head of Market Intelligence Alistair Hewitt said.
Jewellery demand, however, picked up as economic conditions improved in China and there were positive policy changes for the industry in India, while next-generation smart phones boosted gold demand from technology companies, he added.
Even as mine production inched to a record high of 3,269 tonne in 2017, recycling fell 10 per cent, leading to total supply dipping by 4 per cent to 4,398 tonne compared to 4,591 tonne in during 2016.