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”.