Mumbai: In the near term, gold prices are expected to climb an upward graph on the back of strong investment-related demand. However, this demand would be fuelled mainly by Exchange Traded Funds and central banks, states a recent research report published by financial services firm Morningstar.
Observing the past performance of gold prices, it can be confirmed that the market for gold wound up the decade on a robust note with prices increasing manifold, the highest being almost 20 per cent in the third quarter of last year.
Experts are of the opinion that in 2020, demand for the yellow metal is going to be eight per cent higher compared to its previous increase in percentage. However, demand for gold as an investment tool is expected to fade away to some extent during mid-cycle conditions. It is forecasted that the total gold demand to go down by nine per cent in 2022.
Sharing his views on this issue, Kristoffer Inton, Director- Basic Materials Equity Research, Morningstar, “As such, we expect midcycle gold demand to be nine per cent lower than our near-term forecast, leading prices to decline to our midcycle forecast of $1,250 per ounce in real terms by 2022. With prices roughly 25 per cent higher than our long-term forecast, we see limited investment opportunities among our coverage.”
Delving further, the Morningstar research states following the current government initiatives and shifting preferences is expected to further expected witness a sluggish demand in the metal as an investment instrument. This trend would be more evident in India and China – two largest markets with rising disposable incomes. The reason for this can be attributed to government efforts, especially pertaining to that of the former. The Indian government in recent times, in an effort to minimise gold import and strengthen the rupee, increased import duty on gold, thus making it even more difficult for individuals to purchase or invest in the commodity.
Currently, maximum amount of gold jewellery is purcahsed by China and India. Needless to say, these two countries roughly account for 60 per cent of the global jewellery demand. This constitutes less than 40 per cent of the world’s population and nearly 16 per cent of the global GDP, the report states.
“The enormous jewelry consumption in both China and India is not simply a result of their huge populations, as purchases per capita are among the highest in the world and above higher-income countries,” says Inton.