Kristoffer Inton: 2019 saw the resurgence of gold investment demand, leading prices to spike nearly 20% to more than $1,500 per ounce. Unlike previous rallies that we argued were fleeting, today's environment is different. With the Federal Open Market Committee cutting the federal-funds rate three times since August 2019, the investment case has strengthened. Amid heightened investment demand, we forecast a gold price of $1,500 per ounce for 2020.
However, when it comes to gold as an investment, today's demand is tomorrow's supply. Investment-driven buyers can quickly sell when real interest rates rise. In fact, ETF-held gold has reached record levels and now sits equivalent to roughly a year's worth of mine production. We forecast investment demand will eventually begin to unwind, which would weigh significantly on prices.
Worse still, the vacuum left by declining investment demand is likely to remain unfilled. Although jewelry is the largest source of demand, a combination of government initiatives and shifting preferences should drive slower growth in China and India, the two largest markets. The demand vacuum unfilled, we forecast a real price of $1,250 per ounce by 2022.
With gold prices roughly 25% higher than our long-term forecast, we see limited investment opportunities. Although individual miners have the potential to create value through cost reductions or production expansion, our forecast for declining gold prices outshines any operational upside, limiting any investment attractiveness.