China is poised to vault ahead of India and become the world’s biggest gold consumer as small investors scramble to defend their wealth against inflation and a ballooning middle class falls in love with the “portable bank vault” of jewellery.

The country’s rumbling hunger for gold is expected to grow in coming weeks amid predictions that the People’s Bank of China could join other emerging market central banks by becoming a significant buyer of bullion for its reserves.

The forecast of record gold demand in China this year emerged at a weekend conference of the China Gold Association. Demand in 2008 was 395.6 tons, senior figures in the trade body said, but the total figure by the end of 2009 could be well over the 450-ton mark. Last year’s credit crunch, along with recent fears that Dubai could trigger a second crisis of confidence, has played strongly to gold’s reputation as a safe port in a financial storm. The precious metal has lurched 34 per cent higher this year, it hit a record price high of $1,195 an ounce last Thursday and it is on track to complete its ninth straight year of price gains since Britain sold 400 tons of its reserves. Numerous commodities analysts believe that gold could rise to as high as $1,500 an ounce over the next few months, while the most bullish goldbugs, including Christopher Wood, chief strategist at CLSA, the Asian brokerage, have touted longer-term price targets over $3,000 an ounce as the global economy continues its painful deleveraging from a decade of easy credit.

Both market analysts and retailers in China believe that the country is going through an important shift in the way that it views jewellery — emphasising equally its qualities as status symbol and as a portable, fungible store of wealth in troubled times. Jewellery sales are expected to continue growing at double-digit rates. Foremost among buyers’ concerns is that inflation may prove too formidable for the Government to fully control over the next 18 months.

Although there has been a general global trend of lower consumer spending on the precious metal, consumer demand in mainland China surged by 12 per cent in the third quarter, compared with a year earlier. Moreover, the strong popularity of 24-carat gold is viewed as clear evidence that the metal is being bought for investment, rather than purely aesthetic, reasons. Jewellery demand in India collapsed by 42 per cent over the same period.

Beijing’s Politburo ended last week with a promise to maintain policies that would support growth throughout next year. Proactive fiscal policy and loose monetary policy would continue, the country’s leadership said, using the same stimulus-centric terminology that it has used to justify a 30 per cent surge in bank lending. That decision comes despite a rising chorus of economists who believe that any further prolonging of loose policy is a recipe for huge misallocation of capital.

• For those who believe that China’s stimulus programme is an out-of-control bubble machine, proof may come this week from a few thousand baccarat tables. For the casinos of Macau, the prospect of another year of loose monetary policy and leaky bank lending loads the dice even more in favour of the house (Leo Lewis writes).

Excess liquidity is the star in the resurrection of Macau’s casino industry. Bludgeoned by the credit crisis and visa restrictions, Macau suffered: vast projects were abandoned and visitors ebbed away. Unintentionally, perhaps, Beijing’s colossal stimulus measures provided the lifeline. Bank lending went into overdrive and the good times returned to Macau. Casino analysts believe that it roared in because there was suddenly much, much more cash in the Chinese economy.

That theory appeared to be confirmed when Macau’s October numbers came out: they were eye-popping. At three Las Vegas Sands venues, volumes were 80 per cent higher month-on-month. And more solid evidence might appear tomorrow when Macau’s November figures are released.

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