SHANGHAI: A gold frenzy is spreading fast among Chinese investors, with the price of the precious metal hitting new highs even as the stock market stays stuck in the doldrums.

Just ask Wu Ming, 29, a marketing specialist working at an IT company in Hangzhou, Zhejiang province.

"Compared with buying shares in these uncertain times, parking my savings in gold seems a lot more secure," he told China Daily.

Wu was not talking about actually buying gold bullion, or jewelry to stuff under the pillow.

Like many other well-informed and savvy Chinese investors of his age, Wu took the trouble to compare a wide range of gold-related investment products offered by banks and other financial institutions, before deciding on an investment.

After weeks of shopping around, he bought an investment-linked product last month offered by Shenzhen Development Bank. It differed from the usual deposit, with its interests paid in the equivalent amount in gold.

"This product can help me hedge against inflation because I expect the increase in gold prices to outstrip the CPI (consumer price index)," Wu said.

While profit-taking and other "technical corrections" have interrupted the uptrend in gold prices - prices took a dive last week from its peak on March 17 before making a rebound recently - analysts have said they believe the bullish gold market is underlined by the weakening US dollar. That, in turn, is depressed by the worsening US credit crisis, requiring cuts in interest rates and massive injections of capital into the banking sector by the US Federal Reserve.

On the home front, the benchmark Shanghai Composite Index finished 0.63 percent lower yesterday with slides in PetroChina, Sinopec, and China Pacific Insurance.

The index slipped 22.76 points to 3,606.86, the lowest close since April 20 last year.

For Yuan Yuan, a 26-year-old office employee at a Japanese advertising company in Shanghai, buying gold gives her peace of mind after watching the value of her stock portfolio plunge almost 30 percent in the past two months.

"Call it a temporary refuge," she said. "It's time for gold.

"What's more, my mother also bought some gold jewelry before Spring Festival, when gold prices were not that high," Yuan said.

"She has no plan to sell those now because she is sure that gold prices will go up again," Yuan added.

Expectedly, investment and financial firms have reported a surge in the number of gold-related accounts being opened.

"The number of people who approached us for advice on opening gold trading accounts has increased about 200 percent in the past month, compared to the monthly average last year," Fu Jing, an analyst at Qianhe Investment Co in Shanghai, said.

Most of the new investors were reportedly individuals switching, at least temporarily, from stocks.

"Many individual investors like to buy gold bullion in 50g or 100g pieces," Fu said.

The majority of investors do not actually take physical delivery of the metal. Instead, they receive documents certifying the amount of gold held on their behalf by agents like Qianhe, at the Shanghai Gold Exchange (SGE).

And strong demand has pushed up trading on the SGE in the past week.

The transaction volume of the most actively traded Au9995 variety of gold last Monday jumped 44 percent to 3,292kg from a week before, after the price of the metal soared to a historic high of $1,033.9 per ounce in international markets.

Analysts have said they expect a temporary adjustment in gold trading as it continues to go up in the coming weeks.

Yu Wei, a wealth management product manager at Shenzhen Development Bank, told China Daily that his customers have also been showing an increasing interest in gold-related products in recent months.

"Most of our retail customers, particularly those in their 40s to 60s, have been rushing to open deposit accounts that have interests paid in the equivalent amount in gold," Yu said.

For example, Yu said, a deposit of 50,000 yuan ($7,115) in such an account would yield an interest of about 10g of gold bullion at current prices in the domestic market.

"At a time when the stock market is showing increasing volatility, gold-related investment products serve as a good refuge to preserve capital," Yu reiterated.

"As gold prices continue to rise, investors can expect to get a higher return."

A more direct way to invest in gold for a retail customer is to open a trading account with a qualified bank to buy and sell the metal, Yu said.

An analyst surnamed Yang at Zhongding Gold Investment Co in Hangzhou said the company's retail customers were also rising in the past several months.

"We provide our retail customers with diversified contract options for trading gold by setting different trading benchmarks, ranging from HK$10,000 ($1,285) to HK$100,000," Yang said.

Other than gold-related investment products, some wealth product managers said fixed-income products have also gained popularity.

Chen Zhang, a wealth product manager at Shanghai Pudong Development Bank, said that short-term papers, which give steady returns, have attracted a large number of retail investors.

Investors buying a three-month commercial paper will get a 5 percent return. The benchmark for such investments is set at 50,000 yuan per issue, Chen said.

"Investment in short-term papers involves much lower risks compared with stocks," Chen said.

"Fixed-income products are always good investment options when the stock market is sluggish."

At the same time, there are those who simply cannot resist literally getting their hands on the precious metal.

Buying gold has been a Chinese tradition dating back to ancient times. The possession of gold is usually regarded as a symbol of personal wealth.

A salesman at Shanghai Laofengxiang Jewelry Store said its sales of gold jewelry have been increasing in the past six months.

"There are many more people coming to our store to buy gold jewelry, even at the time when the gold price surged to record highs," he said.

"We have been replenishing our inventory in expectation of further increase in sales in the coming months."

Shanghai Yayi Jewelry is also seeing no letdown in a buying frenzy that began at the end of last year.

"There is no sign of a sales decline, although gold prices in the global market have risen quite a lot," a salesman at the store said.

Zhou Yan contributed to the story

(China Daily 03/27/2008 page7)