Chinese investors have continued their buying frenzy for gold as the price of the precious metal headed for $1,200 per ounce.

But analysts have warned that gold's price volatility is expected to remain, reminding over-eager buyers that the metal's immediate outlook remains bleak.

Buyers such as Madame Chen in Lao Fengxiang Jewelry store on Shanghai's famous East Nanjing Road on Friday have been out in force, in the hope of making a profit as prices remain low.

She said she had bought five 30-gram specially designed gold bars at the city's largest and oldest jeweler, for 291 yuan ($46.37) per gram.

"They are gifts for my five grandchildren. I have waited for quite a long time to buy these gold bars at a low price, and the time is right," said the grandmother in her 60s.

Dozens of customers have been swarming the store, with some paying in cash, often within minutes of coming in the door.

Gold has been hot since mid-April, when Chinese buyers started rushing to buy physical gold in jewelry stores as prices slumped.

A technical rebound in the price at one stage made profits for some, but the overall persistent retreat of the metal has resulted in hefty paper losses for many Chinese buyers.

COMEX gold futures have dived to nearly a three-year low of $1,200 per ounce, and the index has slipped 28.6 percent from $1,680 per ounce at the start of the year.

Domestic gold futures have also dropped by 29.4 percent to 240 yuan ($39) per gram, according to Pan Pinlin, an analyst with Jintai Futures Co Ltd.

Analysts are warning that the gold price is still under downward pressure since the US Federal Reserve announced that quantitative easing measures are likely to be pared back next year, after signs of a general recovery in the US economy.

"Nobody can predict where the bottom is, but based on the current situation, the gold price could be as low as $1,000 an ounce," said Pan.

As the US economy shows bullish signs, investors have started to reduce their gold investment weighing, said Zhao Jingjing, an analyst with Essence Futures Co Ltd.

But there are still silver linings for gold investment, she suggested.

"When the gold price is falling, investors can also open a short position to make bearish bets on the metal."

According to Pan, gold is traditionally used as a tool to combat inflation in a bad economy, so if many economies face a wave of inflation in the second half of this year, gold investment could still have its chance to shine once again.

Xu Yuyue in Shanghai contributed to this story.