China's increasingly wealthy population is driving the demand for gold to greater heights as they continue to see the precious metal as a solid investment despite a slump in price.

In a report on China, the World Gold Council (WGC) predicts that China's annual demand for gold could spike by some 20 percent in 2017. In 2013, China became the world's largest gold-consuming nation overtaking India, which is contending with tough government regulations limiting gold trading.

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WGC said China's annual demand for gold in the form of jewelry, coins and bars could be as high as 1,350 tonnes by 2017. This total represents a rise of nearly a fifth from China's record consumption of 1,132 tonnes in 2013.

"The traditional appeal of gold to the Chinese people and consumers' optimistic outlook for prices should result in private sector demand from all sources climbing to at least 1,350 tonnes by 2017," WGC said.

WGC noted that the rising demand for gold in China is being propelled by the growth of its increasingly-wealthy middle class, large bank savings and restrictions on other investments.

It warned, however, that a looming slowdown in China's economy could weaken gold demand. WGC said China faces huge challenges "in moving from an investment and export-led growth model to a more balanced one in which private consumption plays a larger part."

Although the risks associated with this economic transformation should not be underestimated, WGC said the process should result in a considerably higher level of spending by Chinese consumers, thereby benefitting the country's jewelry sector. 

Global demand for gold in jewelry grew to its highest level in 16 years last year as consumers in Asia and the Middle East took advantage of the plunging gold prices. Gold prices plummeted by a nearly a third last year as investors abandoned the precious metal in favor of stocks and other riskier investments.