All that glitters may not be a good long-term investment

By Grace Ormsby

January 24 2020
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While gold prices are expected to continue improving through 2020, the same cannot be said about the commodity’s continued strength as an investment further into the future, a new report has indicated.

A new Morningstar report has noted that shifting preferences will limit the “long-term luster” of the price of gold.

The demand for gold is expected to be 8 per cent higher than it was in 2018, leading to a price forecast from Morningstar of US$1,500 per ounce this year.

Despite this projected increase, it conceded that “when it comes to gold as an investment, today’s demand is tomorrow’s supply”.

It highlighted how investment-driven buyers – especially those using ETFs – can quickly sell when real interest rates rise.

Morningstar reported that ETF-held gold has reached record levels equivalent to roughly a year’s worth of mine production, and any possible unravelling would significantly weigh on prices.

At the same time, it has noted that “a combination of government initiatives and shifting preferences is driving slower growth in jewelry demand in China and India, the two largest markets, despite rising incomes”.

As a result, the report has predicted that it expects midcycle demand for gold to be 9 per cent lower than the near-term forecast – leading to a price decline and forecast of US$1,250 per ounce in real terms by 2022.

Gold prices that are roughly 25 per cent higher than the long-term forecast means Morningstar sees limited investment opportunities in its coverage.

And, despite the creation of value through new or improved mining operations, it has conceded that the “forecast for declining gold prices outshines any operational upside, leaving shares trading roughly in line with or slightly above our fair value estimates on a risk-adjusted basis”.

About the author

Grace Ormsby

Grace is a journalist on Momentum Media's nestegg. She enjoys being able to provide easy to digest information and practical tips for Australians with regard to their wealth, as well as having a platform on which to engage leading experts and commentators and leverage their insight.

About the author

Grace Ormsby

Grace is a journalist on Momentum Media's nestegg. She enjoys being able to provide easy to digest information and practical tips for Australians with regard to their wealth, as well as having a platform on which to engage leading experts and commentators and leverage their insight.

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