Slowly China is turning into a Gold's own country. Till now India boasted of its unchallenged gold power with the farmers and most of the 1 billion people buying the yellow metal on any religious or special occasions.

Watching this unmatched gold power of India was China, which till recently did not encourage the easy buying of gold in its markets. However, with gold prices soaring to new heights and the power of gold rising  in the market following the economic slowdown, China has been rethinking on its gold policy. The results have started coming from the Dragon land.

This week China freed its gold market for foreign players and local banks to tap growing demand for the precious metal, offering citizens a more attractive investment and promising to boost the country's clout over global prices.

This move will certainly help the country beat India in gold power. And, this decision has made its impact on the bullion market this week. Gold is heading for above $1,200 per ounce levels this week and its may cross $1,300 in the coming days if China implements its plans in a big way.

Following the recent announcement by the Chinese government, the Shanghai Gold Exchange and Shanghai Futures Exchange will explore ways of improving the tax policies for gold investment products and commercial banks' gold business.

The number of commercial banks that are qualified to import and export gold will be increased, and the development of the gold leasing market will be further promoted. New channels for physical gold supply will be established, and the foreign exchange policy for the gold market will also be improved. Financing services will be improved, and the gold market will be more open to the outside world.

According to analysts, what's happening in China right now is that a lot of wealth is being switched out of the property markets into the gold market. This is an ongoing theme. This theme is likely to put a very high floor of price on the gold market. The property investor is very concerned the government is trying to cool that market. They've made a lot of money in property.

Investors have long bet that China will eventually overtake India as the world's top consumer, and Beijing's move to allow more domestic banks to export and import bullion underscores the hunger for gold among the country's burgeoning middle class.

More foreign firms are likely to become members of the Shanghai Gold Exchange and analysts also expect Beijing to ease curbs on gold investment products such as exchange traded funds.

Although China is the world's largest gold producer, it still requires imports as demand can easily outstrip domestic output by more than 100 tonnes annually.

China's share of global gold demand jumped to 11 percent in 2009 from 5 percent in 2002, when the Shanghai Gold Exchange opened, and consumption is likely to double in the next decade from around 420 tonnes as income grows.

China is likely to let second-tier institutions such as Minsheng Banking Corp and China Merchants Bank join forces with four major state banks, including Bank of China, that are already allowed to offer such services, bringing the number to at least eight.

Analysts say China wants more banks to trade with overseas counterparts, reduce their reliance on the Shanghai Gold Exchange for hedging and invite more foreign banking institutions to trade on the Exchange, where trading volumes have risen by more than half in the first half of this year.