Wales stormed to a first half lead against South Africa in the humid conditions but the Blitzbokke showed their pedigree by hitting back immediately after the break before a late try by Jamba Ulengo sealed a tense victory.
Ulengo opened the scoring with a well-crafted try but Wales hit back through a converted try by Ross Jones. In a tight contest Wales hit the front on the stroke of halftime when Jason Harries pounced to score by the posts. With Jones adding the conversion Wales held a 14-5 lead at the break.
The second spell was only 30 seconds old when Kwagga Smith scored but Wales remained in front until Ulengo scored his second try midway through the second spell.
Wales Sevens head coach Gareth Williams was disappointed to see his side fall short against the current runners-up in the world series standings but was still able to put on a brave face.
"To be fair to the boys they put in a great shift. They played six games over three days of competition and it was ever so close - I think that is just the point where we are at the moment," he said.
"Against a quality side who are used to winning at the moment they had the edge in key moments but the boys have been superb. We did well to come out of the group - the boys showed real character and produced a quality performance against Canada and to just fall short in the final is a shame."
Wales' haul of 12 points see them remain in 10th place with 57points but with Kenya, Argentina and Samoa all failing to reach the Cup quarter-finals of the Hong Kong Sevens, Williams' side are just three points behind Kenya while sixth placed Samoa are only seven points ahead with two rounds remaining.
"We have now got something to aim for with regards to the final two rounds of the series. We didn't finish last season well but with several teams in our sights if we can re-produce today's performances I see no reason why we can't finish in the top six which would be a great effort from the boys after the horror run we have had with injuries this campaign," he added.