Bitten by the gold bug, Chinese investors are now rushing to hoard the yellow metal as fears over the global recession deepen.

The increased sales of gold bars and gold jewelry in Shanghai, Beijing, Guangzhou and other large cities are reflected in the precious metal's price surge on the Shanghai Gold Exchange (SGE), which trades in gold contracts for forward deliveries. Gold prices quoted on the SGE have increased by an average 6.74 percent in the past month to the current level of about 209 yuan a gram.

"Gold demand in China in the first quarter rose to 114 tons, up 2 percent over the same period last year, solely boosted by an increase in jewelry demand," according to the latest Gold Demand Trends report for the first quarter of 2009 published by the World Gold Council.

The report said global demand for gold rose 38 percent year-on-year to 1,016 tons, representing a 36 percent rise in value. China is the world's second largest gold consuming country after India.

Inspired by the increase in the government gold reserves, the more savvy investors are also buying shares of Chinese gold producers on the Shanghai Stock Exchange and the smaller Shenzhen Stock Exchange.

In late April, Hu Xiaolian, the head of China's foreign exchange agency, said China's gold reserves had risen 75.67 percent to 1,054 tons since 2003. Analysts said they expect the Chinese government would continue to raise its gold holdings as the renminbi becomes increasingly internationalized.

"China's gold reserves may serve as backing for the yuan as Beijing is stepping up the promotion of its use overseas," said Albert Cheng, director of the World Gold Council's Far East Division.

"As we know, in late April, the People's Bank of China announced its gold reserves had risen 454 tons since 2003 to 1,054 tons, a signal that the central bank is taking gold as a reliable hedge against financial uncertainties," said Cheng.

According to Cheng, China now plays a greater role in the global gold market. Based on its increased holdings, China is fifth-largest gold reserve nation after the United States, Germany, France and Italy. In addition, China is also the world's largest gold producer and the second-largest gold jewelry consumer next to India.

"China's demand for gold bullion reached 68.9 tons in 2008, up 176 percent from 25 tons in 2007," said Cheng.

Cheng said gold differs greatly from other investments. "You cannot make a fortune overnight from gold trading, but you won't lose your shirt instantly in gold trading, either," he said. For personal investors, Cheng's advice is: it is never too late to enter the gold market, because gold purchases pay off in the long run.

Gold-related shares on the Chinese bourses have also rallied in recent days. Zhongjin Gold Co surged by 9.29 percent to 76.73 yuan on Wednesday, while Shandong Gold Mining edged up by 5.55 percent to close at 44.5 yuan.

"The declining value of the dollar along with t