Chinese gold demand is poised to double in tonnage terms within just 10 years, a report by the World Gold Council says.

Gold for June delivery, the most actively traded futures contract, on the London Metal Exchange touched a high of $1,114.20 an ounce and is currently trading at $1,112.20.

The dollar index, which measures the U.S. unit against a basket of six major currencies, has fallen 1.2% in the last one week to 81.168, reflecting in the price of gold. A weaker dollar tends to boost dollar-denominated commodities as they act as a natural hedge against weaker currencies.

The SPDR Gold Trust ( GLD), the largest exchange-traded fund backed by gold, increased 2.3% to $108.75 after touching $106.30 on March 24, the lowest this month.

Increased consumption from China will positively affect gold prices, which are currently at $1,111.00 an ounce on the London spot market, its highest point in a week.

The World Gold Council reports that Chinese gold consumption, which was worth more than $14 billion in 2009, could reach about $29 billion in a decade.

The report - "Gold in the Year of the Tiger" -- says that China's gold thirst might catch up with India, which currently is the world's largest consumer of the yellow metal.

"Now one of the world's largest economies, China has already rapidly become a prominent gold market. However, our analysis confirms that significant untapped growth potential exists in the Chinese gold market," said Marcus Grubb, managing director of investment at WGC.

Much of this significant increase in consumption is attributed to an increase in investment demand. According to WGC findings, total gold investment demand in China has grown in line with the country's gross domestic product and population and it expects this trend to continue.

China was the only country to record an increase in jewelry demand last year, when consumption fell in other countries amid high gold prices and global economic weakness. Higher demand also came from industries and the central bank, which holds 1,054 metric tons of gold, more than all but four central banks and the International Monetary Fund.

On the other hand, although the gold demand in China has been on the rise, WGC expects Chinese supply growth to be challenging in the medium to long term and its reserves could be dissipated in six years from now.

Another move that could fuel gold demand is the Chinese government's approval for gold exchange-traded funds to be traded on the exchange. "The doubled demand doesn't count demand from institutional investors," said Albert Cheng, WGC's Asia managing director. "China doesn't have institutional investors in gold."