Gold loses sheen, but still a safe bet

Returning to stability

Among all the precious metals, gold remains investors' favorite. They have significantly less zeal regarding other options such as silver, according to Thomas Cheong, vice-president of the wealth management department at Manulife Financial China operations.

Over the last two years Chinese buyers of gold have displayed a remarkably consistent attitude toward the metal: Demand for investment and jewelry throughout 2012 has shown little variation over 2011 quarterly levels.

Gold demand came under pressure from a variety of opposing forces in 2012, with the net result that quarterly year-on-year changes have been less than significant. Tailwinds propelling Chinese demand included the continued urbanization of the population, the dominance of 24-carat (pure) gold and its role as a savings proxy and increasing availability of gold investment products to a population with a growing awareness of gold's investment properties — particularly its role as an inflation hedge, according to a World Gold Council analysis.

According to statistics compiled by the council, in volume terms, Chinese gold demand can best be described as stable, a minor increase in investment demand being slightly overshadowed by a moderation in jewelry demand. Total customer demand was valued at 262.7 billion yuan ($42.2 billion) in 2012, an increase of 3 percent over the previous year, as people in China continued to allocate greater sums to their gold investment and jewelry purchases. Demand in both sectors reached a record value in 2012.

Gold bars and coins remain the most popular gold investment products, said Gu Xiaochao, a sales manager with China Construction Bank.

"China's investors have a long history of using gold as a tool to hedge financial risks. It is understandable that when people see something as a guarantee of financial safety and stability, they like to see and touch it," said Gu.

The sales manager added that after the media exposed the fact some jewelry brands sell products made with iridium but claim they are pure gold, investors have become more cautious about purity when buying the metal. However, there has not been much of an effect on investment demand.

"We still have clients popping up to buy scores of gold necklaces or handfuls of gold rings. Investment in gold jewelry is as popular as ever," said Yan Fang, a sales consultant at a gold store in Shanghai's Yu Garden — one of the city's gold jewelry hubs.