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In the glittering halls of the Caibai New Century department store in Bejing, consumers caught between rising inflation, volatile stock markets and a limited real estate market are sinking their savings into what appears to be one of the last reliable investments around – gold.

"In bad times, we buy gold," said Wang Heping, 39, who made a stop at Caibai during a journey to the capital from his home province of Qinghai. As he examined a collection of heavy gold and silver desk ornaments, he blamed a weak U.S. dollar for contributing to China's inflation rate. "The whole world is paying for it," he said.

As he spoke, the crowd in the store grew a little busier, most likely prompted by a dip in the market price of gold to below $1,500 (U.S.) an ounce.

China's inflation rate hit 5.4 per cent in March and with new government regulations preventing the purchase of multiple properties, precious metals are looking more appealing to a growing middle and upper class trying to protect their savings.

Chinese consumers bought 400 tonnes of gold jewellery in 2010, a new annual record that made the country the second-largest market in the world after India. The growth in investment demand was the strongest anywhere in the world, up 70 per cent to nearly 180 tonnes of gold bars and coins.

The trend is expected to continue this year, according to the World Gold Council, which tracks such statistics.

"People have to park their wealth somewhere," said Albert Cheng, the council's managing director for the Far East. "It boils down to one thing: Chinese always look to gold as a means of preservation of wealth."

The popularity of gold in China seems to have withstood the precious metal reaching a record high of $1,509.60 this week, which analysts attribute largely to the impact of a weak U.S. dollar. But a toughening in U.S. monetary policy, including a hike in interest rates, may result in falling gold prices, prompting some warnings of a bubble about to burst.

"Everyone is going to be looking at the tea leaves this week to see which way the U.S. goes," said Peter Hickson, Hong Kong-based head of global commodities research for UBS. "If you consider gold as a commodity, you could say it's moving further and further away from the supply's fundamental character," Mr. Hickson said. "[But] gold is a currency at the moment."

The possibility that prices could drop again has not gone unnoticed in the Beijing department store. "It's expensive now. It's not a good time to buy," said Li Chao, a 42-year-old businessman browsing a display of engraved gold bars and solid gold rabbits (honouring this year's Chinese zodiac sign). Still, he didn't rule out a purchase, after pausing to consider the alternatives for protection against inflation.

"Housing's out. I wouldn't invest in housing now. And gold is getting expensive because people are buying like crazy. … I have stock investments, yes, but of course I'm worried about them," Mr. Li said.

"People's fear is driving them to buy [gold] now," he added. "People's investment channels are narrow and they want to save money. So they buy gold."

Special to The Globe and Mail

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