Gold loses sheen, but still a safe bet

It has been more than two weeks since Liu Chan, a gold product manager working in Shanghai, has enjoyed a quiet weekend at home. The 32-year-old gold product consultant with a Shanghai-based bank said investors' increasing passion for gold coins and bars has kept her on the phone answering inquiries from more than 20 clients a day.

A powerful trigger for their desire to buy the yellow metal is its falling price in the global market, sparking interest in a market regarded by many as a haven in troubled financial times. On April 15 gold for June delivery on the Comex division of the New York Mercantile Exchange was down $74.50 — more than 5 percent — at $1,406.90 an ounce. Its lowest point was $1,363.5 an ounce, the sharpest two-day tumble since 1983. Spot gold prices fell by more than $100 an ounce — 8.7 per cent — in a few hours on April 15 amid a rout in the metals markets.

In China, the price of gold dropped by the daily limit for two consecutive days on April 15 and 16 on the Shanghai Gold Exchange following a slump in international prices.

Gold jewelry stores in Shanghai, Beijing, Wuhan and Nanjing reported gold jewelry and bullion bulk buying. In Beijing, staff at a gold shop said customers came from all across the city and bought a combined 20 kilograms of gold within a couple of hours in just one day, according to a China Central Television report.

"It seems that investment in gold is getting popular as investors attach increasing importance to hedging risks in their portfolios and are passionate about buying when the price is dropping," said Liu.

Robust outlook

Despite challenging domestic economic conditions, China, alongside India, remains a global gold power house, according to Marcus Grubb, managing director of the investment department at the World Gold Council.

"Notwithstanding the predicted economic slowdown in China, investment demand was up 24 percent in the fourth quarter on the previous quarter," said Grubb referring to one of the latest reports on trending in gold demand.

The latest statistics from the World Gold Council show that in China investment in gold reached 265.5 tons in 2012, a healthy level of demand, and the recovering economic situation in the country may see more demand for gold investment this year.

Grubb said China is still among the countries with the highest demand for gold in the world despite its slowing but nonetheless significant economic growth. A recovering economy may see more demand for gold in 2013.

"Looking forward, the signs of economic improvement bode well for gold demand in China, although the indications are for a steady firming of demand rather than for strong growth. This will remain the case while the gold price continues to hold within the broad sideways range of the last five to six months," the council report said.

Xue Ke, chief analyst and deputy general manager with Tianjin Jinhengfeng Precious Metals Management Co, said investors in China need to clarify their investment goals before they can make a reasonable choice for their portfolios.

Because the infrastructure surrounding the trading of gold is yet to mature in China, an emerging market, the market's pricing power for gold is relatively weak compared with that of mature markets. China's investors need to consider global economic and political situations, elements that may affect gold prices, said Xue.

"Investors need to study the pricing mechanism of gold — both spot and future prices — and decide whether they are going to speculate short-term or are eyeing long-term value growth," said Xue.

Despite numerous headwinds, emerging markets, responsible for the majority of physical gold demand, are showing signs of improvement, according to the council.