Gold bracelets on display at a jewelry shop in Nantong, Jiangsu province. High demand for the precious metal, seen as a safe and profitable hedge against inflation, has resulted in surging prices. [Photo / China Daily]

SHANGHAI - Investors are flocking to banks and famous gold stores in the city to snap up the yellow metal as a hedge against inflation.

At Lao Feng Xiang, a jewelry retailer in the city's Xuhui district, daily gold bullion sales have recently reached as much as two million yuan ($300,000).

Wang Ensheng, a spokesman for Lao Feng Xiang, said that in the past, it was rare to see sales reach 400,000 yuan in a single day.

In Nanjing, Jiangsu province, an investor reportedly bought 50 kg of gold bullion worth 15 million yuan on Nov 22, according to Modern Express, a local newspaper.

"Gold investment is regarded as a safe haven by wealthy investors when uncertainties exist in the domestic stock and property markets," Wang said.

Meanwhile, the continually increasing gold price is also recognized as a quick way to generate profit in the short run.

The price of gold in China has risen steadily in the past 11 months. The price of Au99.99 gold traded on the Shanghai Gold Exchange has increased from 243.89 yuan a gram on Jan 4 to 295.58 yuan on Nov 25, up more than 20 percent.

In contrast, the lead stock market indicator dropped more than 10 percent in the same period.

"Chinese people are likely to buy gold when the price rises," said Zhang Yongtao, vice-chairman of the China Gold Association.

Although the global gold price has softened a little since the United States announced positive economic data on Wednesday, Zhang predicted that the decline will be short-term.

"The loose monetary policy in the US and the latest clash between the Democratic People's Republic of Korea and the Republic of Korea is going to push up the price of gold," said Zhang. "But fluctuations may occur in the short run."

Benefiting from booming demand and the high gold price, Lao Feng Xiang is expected to generate sales of around 13 billion yuan in 2010, up 20 percent from 10.9 billion in 2009. Gold accounts for some 60 percent of the company's sales.

Gold demand from the jewelry and investment sectors in China was earlier expected to increase by at least 10 percent this year, the highest growth rate in recent years, according to the China Gold Association.

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Zhang said the aggregate demand of the two sectors is expected to exceed 500 tons in 2010, up from 450 tons in 2009.

"People buy more gold mainly to hedge against inflation," said Zhang. China's consumer price index hit a new high of 4.4 percent in October, increasing from 1.4 percent in January.

"The fluctuating stock market and the tightening property market in China have also led investors to consider other investment channels," added Zhang.

Although the gold price is expected to increase, Zhang said small-scale investors should be more cautious in buying physical gold.

"Although some large gold firms have a gold repurchasing plan, transaction and processing fees require investors to take a long-term strategy in order to generate a profit," said Zhang.