Yellow metal loses sheen as global economic risks recede

The price of gold slid 3.8 percent in May, the biggest monthly loss so far this year, as hedging demand contracted amid stabilizing global economic conditions.

Gold futures at the New York Commodity Exchange closed at $1,246 per ounce for August delivery last Friday, the final trading day of May. That was the lowest close since February.

In China, prices at the Shanghai Futures Exchange and Shanghai Gold Exchange also slumped to their lowest since February.

Analysts said the trend wasn't surprising, since the use of gold and silver to hedge risk has declined compared with recent years, when investors were more worried about economic prospects and global security concerns.

Growth in Europe and the United States appears to be recovering, and concern over tensions between Russia and Ukraine are fading. As a result, capital may flow out of the gold market into other assets that offer higher yields, said Yang Fei, an analyst at Shanghai Seewonder Financial Information Technology Co Ltd.

"Gold is by nature a risk-hedging tool and an asset class, and holding gold, either physical or futures, can still be a reasonable part of a portfolio," said Yang.

The price of physical gold in Beijing dropped from 385 yuan ($62.35) per gram in April 2013 to 316 yuan per gram in April 2014, a decline of about 18 percent, according to Caishikou Department Store, a precious metal trading hub in Beijing.

However, consumption of gold, especially for ornamental purposes, is still strong in China, thanks to the country's passion for the precious metal and its symbolic and emotional meaning. Fleeting losses may have little impact on gold holders in China, said market insiders and analysts.

Gold in China has a cultural meaning beyond that of a mere metal. It also represents a family's wealth that can be handed down through the generations, and in this sense, buyers of physical gold don't worry much about short-term price fluctuations, according to Xue Ke, chief analyst and deputy general manager with Tianjin Jinhengfeng Precious Metals Management Co.

Investors need to clarify their investment goals and keep their risk tolerance in mind so they can make informed decisions, said Xue.

Sun Taoxian, a 46-year-old physician in Shanghai who has about 10 percent of her savings in gold bars, said that investment in bullion has become "more challenging" as the price becomes more volatile.

"I may learn more about gold trading. In the past, I just put the bars in the safe deposit box and didn't think further about the price," said Sun.

According to the China Gold Association, the nation's gold purchases totaled 323 metric tons in the first quarter, up 0.76 percent year-on-year. Of the total, 232.5 metric tons went into jewelry, a 30.2 percent year-on-year increase.

Consumption of gold bars accounted for only 67.95 metric tons, down 43.5 percent year-on-year.

According to the World Gold Council, global demand was "robust" in the first quarter, marking a return to the long-term quarterly average demand trends established over the previous five years. Following an exceptional year in 2013, first-quarter demand was virtually flat at 1,074 metric tons.

"The first quarter of 2014 signals a return to the long-term average pattern of demand, holding steady at 1,074 metric tons. It is clear that the longer term underpinning of the gold market such as jewelry demand in Asia remains firmly in place," said Marcus Grubb, managing director of investment strategy at the council.