According to figures from the World Gold Council's Gold Demand Trends report, total gold demand in China last year soared 71.1% to 187.4 tonnes.
In a report from March last year, the WGC predicted that Chinese gold demand would double within the next 10 years.
"However, given the recent momentum in Chinese gold demand, we would not be surprised to see this result achieved in a shorter timeframe," the report said.
It names a number of key factors driving Chinese demand, including China's cultural attachment to gold, hedging against inflation, and diversification away from China's property market, as well as China Central Bank and many leading economic scholars being positive on gold.
Meanwhile, global demand for gold as an investment also grew during the first quarter of the year.
In the March quarter, gold demand reached 981.3t, up around 11% on the same quarter in 2010, worth around $US43.7 billion ($A40.96 billion).
Physical investment demand for bars and coins was up 52% to 366.4t, driven by unrest in the Middle East and northern Africa as well as a brief dip in the gold price in January.
Central banks around the world boosted their gold holdings with purchases in the first quarter eclipsing total central bank buys in 2010.
Banks bought 129t, worth around $5.7 billion.
Mexico purchased 93.3t in the quarter, boosting its holding to around 3.6% of the world's reserves.
Bolivia, Russia and Thailand were other companies to increase their reserves.
The WGC is predicting the trend will continue as central banks, particularly in emerging markets, purchase more gold as a way of diversifying their reserves.
On the supply front, mines delivered 653.9t, up from 601.6t in the first quarter of 2010, while total supply, which includes official sector sales and recycled gold slipped 4% to 872.2t.
The WGC said around 6-7t of increased mine production comes from a number of smaller mines in Australia.
African operations made up around 25% of gold production in the March quarter.
This story first ran on PNGINdustryNews.net's sister publication, MiningNews.net