By RHIANNON HOYLE And YUE LI
SHANGHAI—The year of the dragon is breathing new life into gold prices.
The Chinese have been loading up like never before on gold ahead of the Lunar New Year, which falls on Jan. 23 this year. It is a time of gift-giving that takes place during family dinners, with the older generation giving money to younger members. And as the Chinese have gotten richer, gold—in the form of jewelry, coins and even bars—is becoming the gift of choice.
In preparation for the festivities, China imported a record amount of gold in November, the most recent month for which data are available.
Shipments from Hong Kong to mainland China, which analysts use as a proxy for all imports, totaled 102 tons, a 20% increase from October and a nearly sixfold increase from November 2010.
The data reassured gold bulls that the 6% increase in prices so far this year could be more than a short-term rebound from the metal's 10% drop in the final days of 2011. Spot, or physically traded, gold on the Shanghai Gold Exchange rose 0.8% to 339.18 yuan per gram, or $1,670.95 an ounce.
The import figures are "impressive," said Anne-Laure Tremblay, a precious-metals analyst at BNP Paribas, adding that the Chinese demand appears to be supporting prices globally.
That also is what the spot, or cash, market in China is indicating. Last week, prices on the benchmark spot contract here were as much as $21 an ounce more than prices on a similar contract representing actual gold changing hands in London.
While this price gap can be very volatile, many analysts interpret consistently higher prices in Shanghai as a gauge of strong Chinese demand. Gold in Shanghai hasn't traded below the London price since Nov. 30, when the discount was $22.
China's consumption of gold jewelry jumped 16% last year to a record 514 metric tons, according to metals consultancy GFMS. Meanwhile, India, the world's largest gold consumer, saw jewelry demand slip.
As in other parts of the world, the Chinese are increasingly blurring the lines between retail gold demand, which is usually thought of as people purchasing jewelry to wear, and investment demand in the form of bars, coins or shares in exchange-traded funds.
Ma Bowen, a sales manager at a gold store in Yu Garden, a shopping area brimming with gold merchants near the eponymous park, estimates he sold 20% to 30% more gold last year. Alluding to worries about inflation, he says he is seeing an influx of younger shoppers among the crowds that throng gold shops steps away from a lavishly landscaped territory with pavilions, ponds and rock gardens.
Many of those shoppers are buying gold bars "to get their hands on something that's physically valuable and may appreciate in the long run," he said.
Inflation in China is running at 4.1% as the country continues a robust growth trajectory, with gross domestic product increasing at a 8.9% annualized rate in the fourth quarter.
The yuan, though, also strengthened against the dollar last year, which made gold more affordable for Chinese buyers.
Grace Zhang, a 29-year-old manager at a pharmaceutical company, said she has no regrets about buying gold bars when prices were rallying last year, even though that investment is in the red now.
"Gold is relatively an easy investment for me as it isn't as complicated and risky as other asset classes, such as stocks or bonds," Ms. Zhang said. "As long as I know where gold prices are heading, I'd know roughly how good or bad my investment is."
Some say China's enthusiasm could wane, and other factors could weigh on gold prices.
Still, Andrey Kryuchenkov, a commodity analyst at VTB Capital, said he is "reluctant" to write off higher import volumes and anecdotal evidence of more buying by consumers as just a seasonal phenomenon.
The turnaround in gold prices "wouldn't be justified without some real fundamental backing, and every year China gets more important in that picture," Mr. Kryuchenkov said.