Italy has lost its position as the world's premier gold jewellery exporter, overtaken by India and the United States, and risks slipping further due to its high cost base and tariff barriers.

For years, Italy was the world's biggest manufacturer and exporter of mass-produced and crafted gold jewellery. Bulgari, Damiani and Roberto Coin are Italian luxury brands celebrated worldwide for their opulent use of gold and precious gemstones and cutting-edge designs.

But the Italian goldsmith sector is fighting an uphill battle against punitive import duties imposed by markets such as China, and competition from lower cost producers benefiting from improving design skills and the latest technology.

Soaring prices of gold and high salaries, have inflated Italian jewellery manufacturers' costs.

Domestic gold jewellery sales have slumped due to the recession in Italy and the soaring price of gold, which hit a record price in euro terms last month.

"Demand for jewellery is one of the first things that drops in a recession," said Licia Mattioli, who is president of Italy's Federation of Goldsmiths (Federorafi), and heads a family-owned gold jewellery manufacturing business in Turin.

Sales of gold jewellery in Italy were down 15 percent in volume terms (to 4.8 tonne) and fell 9 per centin value terms ($246 million) year on year in the second quarter, figures from the World Gold Council showed.

Steven Tranquilli, director of Italy's federation of jewellery retailers, Federdettaglianti Orafi, estimated that gold jewellery retail sales were down 20-25 per cent year on year in Italy.

Total revenues of the Italian goldsmith sector in 2011 stood at 6.3 billion euro, down 16 per cent from 2007, according to Federorafi.

The Italian industry flourished on the expertise and skills built up by family-owned businesses over generations and the international prestige of "Made in Italy" design and manufacturing. Italy is seen as an international trend-setter in jewellery design.

But now India and the United States have overtaken Italy as exporters in volume terms.

There is also intense competition from lower cost gold jewellery manufacturing origins such as mainland China, Hong Kong, and Thailand, Mattioli said.

"India and the United States have tax advantages over Italy," Mattioli said. She said that Indian manufacturers can export gold jewellery to the United States duty-free up to a certain volume, whereas all Italian gold jewellery exports to the United States had to pay duty.

Indian and Brazilian manufacturers pay low duties when they export gold jewellery into EU markets, she added.

Manufacturers in India and the United States have benefited from greater economies of scale compared to the fragmented nature of the Italian goldsmiths' industry, as well.

Improving design skills and technology, and cheaper labour, give manufacturers in developing countries such as India a competitive edge.