China's Gold Quest

The World Gold Council predicts gold consumption in China will double in the next decade. Jewelry demand, investment demand, even industrial demand… they all factor in.

"This forecast seems reasonable," says Frank Holmes, "and it lines up with what I've long been saying about the profound evolution in China's economy -- domestic consumption is replacing exports as the growth engine as more poor Chinese move up into the middle class and from there into the ranks of the wealthy.

"China has a centuries-long cultural affinity for gold, so it makes sense that more middle class and wealthy would mean more gold sales.

"The line on the WGC chart above shows how investment demand for gold has rocketed up from next to nothing in 2001 to 80 tonnes (2.6 million troy ounces) last year, with the sharpest upswing coming after trading rules were liberalized in mid-2007.

"Over the same period, China's GDP roughly tripled. The Chinese are famous for their high savings rate, and the chart shows how important gold has become as a store of their growing wealth."