But potentially the most important new factor in the gold market is China. China now has more than $2,400bn of foreign exchange reserves, but only 1.7 per cent of this is invested in gold. The IMF is projecting that China will run a current account surplus of $2,600bn during the next five years. If it does, its forex reserves could rise to the $5,000bn-$6,000bn range. Even if it keeps the gold share of its reserves constant, it will have to buy a further 1,000-1,500 tonnes. Yet the odds are high that China will want to expand the gold share of its reserves in order to lessen its vulnerability to dollar devaluations and strengthen the renminbi's status as a global currency.

As with the US 100 years ago, China will probably regard large gold holdings as a way to project financial power. In 1913, before the dollar had emerged as a global currency, the US had 2,293 tonnes of gold compared with 248 tonnes for Britain, 439 tonnes for Germany, 1,030 tonnes for France and 1,233 tonnes for Russia. The Americans' large gold reserves made the dollar a natural replacement for sterling when the first world war crippled Britain's financial position. The US is now running a fiscal policy that has parallels with Britain during wartime, which could undermine the dollar's global role at some point.

Some Chinese officials have publicly called for the central bank to purchase 10,000 tonnes of gold. The central bank has declined to comment on these proposals, but they will become increasingly attractive if the US pursues a policy of dollar devaluation while the renminbi emerges as a global currency.

It is also possible that the massive expansion of China's foreign exchange reserves could spawn faster monetary growth and increase China's inflation rate. If it does, there could be a sharp rise in Chinese private demand for gold.

David Fuller's view This is certainly one of the best articles on gold that I have seen in the FT.