SINCE 2007, when South Africa fell behind, China has been the world's biggest gold producer. Now the World Gold Council and industry analysts believe it may have overtaken India — for centuries the dominant buyer — to become the biggest consumer too. The China Gold Association estimated demand would exceed 450 tonnes last year, up from 395.6 tonnes in 2008 (the actual figures are not yet available).

The country's rising consumption both drives, and is fuelled by, the increase in global gold prices. Last January, an ounce of gold cost about $750. But on Dec 3, it hit a record high of just over $1,226. Since then it has slid to $1,095, but is still far above its level in recent years.

Much of the gain is recent. In the third quarter of 2009, gold demand on the mainland soared 12 per cent year-on-year to a record high of 120.2 tonnes. Internationally, demand for jewellery was down 30 per cent, but in China it rose eight per cent to 93.5 tonnes while retail investment rose a staggering 30 per cent to a record 26.8 tonnes.

Albert Cheng, Far East managing director for the World Gold Council, points out this is partly because China's continued economic growth is enabling consumers to indulge in a favourite luxury. He said “The Chinese have a deep affinity to gold which dates back thousands of years. No marriage will be ideal if the bride does not receive gold jewellery.”

That is why, even on a weekday morning, the shop floor at Caibai is rammed. On busy days, 10,000 people pass through its doors. This store is to gold what Marks & Spencer is to underwear in Britain not the most glamorous source, nor the cheapest, but the tried and trusted favourite. In 2008, the company sold gold worth 3.5bn yuan (£316m). In the first 11 months of 2009, it sold 4.1bn yuan.

Customers are picking over delicately wrought earrings and gazing covetously at huge, embellished collars. Increasing prosperity is enabling middle-class consumers to treat themselves. Nearby shelves are stacked with solid gold statuettes busts of Chairman Mao, frolicking labradors, soaring eagles and majestic galleons. Laughing Buddhas sit beside writhing dragons. Every item is labelled by weight, and charged according to the metal's price on the day of sale.

Gold looks attractive to the government too. Last year, Beijing revealed it had been buying gold since 2003, increasing its holdings from 600 to 1,054 tonnes. So far it has bought domestically, but its foreign exchange reserves — the world's largest, at $2.27tr — are largely invested in US government bonds. Given concerns about the US economy, many expect China to buy gold internationally to diversify its assets, as other central banks have done recently, driving up the price.

Newspapers report that coal bosses, driven out of business by a nationalisation campaign, are caught in bidding wars for gold mines instead. Some of these mines have yet to produce gold. But many buyers do not seem to mind they are simply flipping the mines, reselling them as soon as the price goes up. They see gold not just as an investment haven but as an irresistibly accumulating asset. Yet while some experts predict a long-term rise in the international price, others fear prices could fall sharply.

— The Guardian, London