China is on track to become the world’s biggest gold market this year, eclipsing India, according to a World Gold Council report.

“It is likely that China will emerge as the largest gold market in the world for the first time in 2012,” said Marcus Grubb, managing director for investment at the WGC.

Consumption in China last year rose 20 percent year-on-year to 769.8 tonnes, narrowing its gap with India from the previous year’s 356 tonnes to 163.6 tonnes, according to WGC data.

Mr. Grubb predicted that Chinese consumption would continue to rise at the similar pace this year, and that implied jewellery and investment demand of about 925 tonnes in 2012.

Consumers from Chinese mainland also popped up gold sales in Hong Kong. In 2011, jewellery demand grew 33.5 percent to 27.5 tonnes from a year ago, hitting a 13-year high.

Overall, gold demand grew to a record of 4,067 tonnes in 2011 since 1997, largely driven by gold investors amid global economic uncertainties, the report said. Nearly half of the demand came from India and China.

Gold prices, at the same time, have traded high for 11 straight years, and peaked at 1,895 dollars per ounce last September.

The rally will continue this year, the WGC said, citing extra low real exchange rate and inflationary pressures. For India, China, and Vietnam especially, Gold will be more attractive as a product to hedge inflation, it added.

Central banks remain the largest net buyers of gold in the year, boosting from last year’s 77 toones to 439.7 tonnes, a record high since 1964.

As developing counties diversify their foreign exchange reserves, their central banks will continue to boost holdings of gold as a way to protect national wealth and stabilize financial markets, according to the lobby group for the gold mining industry.

The United States hold 8,133 tonnes of gold in reserves, accounting for 74.5 percent of overall foreign exchange reserve; while in China, the proportion is only 1.6 percent.