What’s going on with gold?

Why today’s demand could become tomorrow’s supply

Andrew Willis 24 February, 2020 | 1:22AM
Facebook Twitter LinkedIn



Andrew Willis: Coming off of disappointingly modest gains throughout the coronavirus volatility, we’re wondering why gold’s traditional safe-haven status didn’t see prices surge further. Are there other fundamental factors at play that could see gold decline going forward?

Sector analyst Kristoffer Inton says that 2019 saw a resurgence in gold prices because of investor demand – in fact, prices rose 25% higher than his long-term forecast, thanks in part to sky-high jewelry demand from China and India. Jewelry accounts for 45%-60% of all gold demand in any given year, but ETFs holding gold now represent more than a year’s worth of production from gold mines. When core jewelry demand comes down, it’s going to weigh heavily on prices.

In the near term, government actions in both India and China have weighed on gold purchases. In China, Beijing implemented efforts to stem capital outflows, which included tighter restrictions on gold imports. In India, the government has long sought to minimize imports and tax gold purchases to strengthen the rupee.

And if you’re thinking that demand from non-jewelry applications will make up the difference, think again. Demand for gold in areas like dentistry and electronics is actually the smallest and fastest-declining, as high gold prices drive demand for cheaper substitutes.

So where will support come from? Central bank reserves. We forecast gold hitting around 1,500 U.S. dollars an ounce in 2020 – below its highs of Q3 2019. And in the coming years, we see jewelry demand dropping 9%, leading to our target of 1,250 U.S. dollars an ounce by 2022.

For Morningstar, I’m Andrew Willis.


Facebook Twitter LinkedIn

About Author

Andrew Willis

Andrew Willis  is Senior Editor at Morningstar Canada. He previously produced content for Fidelity Investments and finance industry events for Euromoney Institutional Investor and has written in the past for Thomson Reuters and CNN. Follow him on Twitter @Andrew_M_Willis.

© Copyright 2024 Morningstar, Inc. All rights reserved.

Terms of Use        Privacy Policy       Disclosures        Accessibility