The Chinese Spring Festival is just about here, it is one of the 2 major annual holidays in China known as a Golden Week, and many Chinese people are going to jewelry stores to buy up valuable trinkets for friends and relatives.

The consumer price index hit a 28-month high in November when it rose by 5.1% before easing to 4.6% in December. The rise in inflation was mirrored by a high in people's appetite for Gold.

Zhang Bingnan, secretary-general of the China Gold Association, told China Daily on Friday that the total use of Gold rose almost 20% to 510 tons last year, mostly because people wanted inflation-proof investments. The amount of gold used by jewelers and industry has grown steadily while Gold bought for investment has grown quickly too, he said.

China has been the World's 2nd largest buyer of Gold after India for the past 3 yrs and the Top producer of the precious Yellow metal for the past 4 yrs. In Y 2010, the nation produced 340 tons of Gold, a rise of 8.6% on the year before.

Chinese consumers' appetite for Gold has been stronger this year than in previous years, said Wang Chunli, general manager of Beijing Caibai Ornaments Store. The demand for Gold jewelry and Bullion has been phenomenal ahead of the Lunar New Year Holiday.

The store saw sales hit 7.2B Yuan in Y 2010, a 60% rise on the previous year. Daily sales ahead of Spring Festival often exceeded 100M Yuan he said. Chinese New Year is the time of year when Chinese people give gifts, usually money in red envelopes, said Wang. This year, Gold is popular mainly because it does not depreciate.

But Wang Lixin, of the China office of the World Gold Council, said the trend has been building for a while.

Gold has been hot since last year, said Wang Lixin. Coupled with the slump in the stock market and the property price, it has become the best investment.

The strong desire for Gold among Chinese consumers has triggered a drive to find more reserves to meet demand. According to Zhang, the government invested 500M Yuan on exploration for new deposits of Gold in the past 5 yrs.

Investment activity in China remains high with physical Gold at the Shanghai Gold Exchange totaling 6,046 tons in Y 2010, up 28.48% Y-Y.

Wang Lixin said demand is likely to keep growing, given China's huge population and its increasing spending power.-Paul A. Ebeling, Jnr. www.livetradingnews.com