Money

Bullion glitters as realty fizzles out

By Zhou Yan (China Daily)
Updated: 2010-05-26 10:12

BEIJING - The record high prices for the yellow metal this month, on the back of strong investor demand, has proved to be a windfall for bullion dealers and pawn shops.

"On average, we receive 30 to 40 telephone calls every day from customers about the prices for gold bars and jewelry, something we have not seen in recent times," said Li Chunhua, marketing director at Beijing Huaxia Pawnshop Co, which operates seven shops in the capital city.

Huaxia's business in pawned gold has risen by 30 percent this month from a month earlier, while gold sales jumped 45 percent over the same period. "Gold transactions had been relatively stable over the past two years when compared with the property and automobile sectors. So we were surprised to see a surge in demand," Li said.

"We increased the pawned gold price to 252 yuan ($32.88) per gram last week, a six-month high," she said.

Gold prices hit an all-time high of $1,249.4 per ounce at the Comex division of the New York Mercantile Exchange on May 14, as concerns over the debt woes in Europe boosted demand for safer assets like bullion.

Comex gold experienced a small correction afterwards and settled at $1,194 on Monday. "The price of gold still remains at high, even though it saw some declines recently," said Wang Dapeng, an analyst at Zhejiang New Century Futures Co.

Surging demand from domestic consumers is seen as the main reason for the higher prices. China, the world's second-largest consumer of gold, bought 480 tons of the metal in 2009, nearly 13.7 percent of the total global offtake, said Wang. "We expect domestic demand for gold to continue growing amid rising inflation concerns."

The country's rich entrepreneurs also seem to be cashing in on the fervor for the yellow metal.

"A businessman from Zhejiang's Wenzhou city spent more than 14 million yuan to buy gold from our company recently," said Tao Xingyi, president of Beijing-based Jinding Group, a gold investment consultancy and trader of high-end gold products.

"Our clients have more than doubled in the past few months," he said.

"Large amounts of capital are being drained out of the sagging realty market and most of it is finding its way to the bullion markets."

Wenzhou is home to investment-savvy entrepreneurs, who have played a pivotal role in jacking up realty prices with huge investments.

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The tepid realty market and slumping stock market, the two main investment channels earlier, are no longer the top draw for Wenzhou investors. Gold investments have boomed due to its strong and stable performance, said Zhou Dewen, chairman of the Wenzhou Small and Medium Enterprise Business Development and Promotion Association.

"The risk of investing in gold is smaller even at such high levels, compared with other investment channels," said Wang.

Metal stored to back the world's largest gold exchange traded fund, SPDR Gold Shares, reached a record 1,236 tons Monday.