Where would we be without China? It is a question many people in the commodities industry have asked in recent years. But it has particular resonance for gold.
An explosion in physical demand from the second biggest economy has prevented a sharp sell-off from becoming a disorderly rout – and provided nervous investors with a reason to remain positive on gold as its 13-year bull run comes to an end.
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And 2013 looks set to be the first year in modern times when China will overtake India as the precious metal's number one consumer, according to Thomson Reuters GFMS. It will also mark the first time that the world's biggest producer of gold is also the largest importer and consumer, says HSBC.
In the year to date Chinese imports of gold are estimated to have nearly doubled to 864 tons, according to figures from investment bank Natixis, and are on course to exceed 1,000 tons for the first time.
"I don't think we fully understand the size and the appetite of the Chinese market and its implications for the global price," Jeremy East, global head of metals trading at Standard Chartered told the London Bullion Market Association's conference in Rome this week. However, there are indications that demand is beginning to slow – premiums on the Shanghai Gold Exchange have started to ease – and analysts are not sure another drop in the gold price would trigger further rapacious buying from China.
This year has seen a rebalancing of the gold market. In the west, institutional investors have slashed their positions in gold-backed exchange traded funds on expectations of a shift in US monetary policy, a key driver of the gold price in recent years.
Gold holdings in ETF funds have fallen from a record 2,700 tons at the start of the year to about 2,000, pressuring the bullion price, which has fallen 20 percent to $1,316 a troy ounce in the year to date.
The selling has been countered, but not fully offset, by an explosion in physical demand from consumers in Asia, and in particular China. India also saw record imports earlier in the year before demand was hit hard by regulations. This buying helped gold rally from its April and June lows of $1,360 and $1,199 respectively.
"Where would the gold price be if China hadn't come in and mopped up?" Mr East commented at the conference. "I wouldn't have been surprised to have seen gold testing its big support level at $1,050."
ETF sales have now slowed but many analysts believe it is a temporary respite and sales will resume once the timing of the tapering by the US Federal Reserve becomes clearer.
"If we look at where ETF holdings stood when Lehman Brothers went under it was around 1,000 tons," Philip Klapwijk, managing director of Precious Metals Insight said at the LBMA event.
"I don't think we are going to see anything like that; but could we see another 200, 300, 400 tons of liquidation? I think that's quite feasible. In 2009, for example, there was just 1,800 tons of gold backed ETFs."
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The extent to which the falls in April and June have flushed out "weak holders" is hotly debated among market participants. So too is the outlook for Chinese demand. Citi, for example, argues China is now very well stocked with gold and demand will slide over the remainder of the year.
"Demand seems to have slowed as the gold price rose in July and August, but it's not clear," says Matthew Turner, an analyst at Macquarie. Also unclear is how much of China's buying came from the "official sector" and could provide an ongoing source of demand. There is a suspicion among analysts that China's central bank has purchased around a couple of hundred tons this year to diversify its holdings from US Treasury bonds.
While China has been a stabilizing influence on the gold price this year, few market participants believe it will be able to drive the price higher on a sustained basis. "The problem is much of the demand [from China] is related to the fall in the price. Like central bank purchases it has helped establish a higher floor but it won't on its own drive gold back up on a sustained basis," says Mr Klapwijk.
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Indeed, not even mounting fears of the first default by the US of its debt obligations has been able to drive up the gold price, which hit a near two-month low earlier this week. In very similar circumstances in the summer of 2011 gold breached $1,900.
This, according to analysts, is striking and shows how sentiment towards gold, at least in the west, has shifted in the past year as tapering has come into focus.