TORONTO (miningweekly.com) – Independent investment research provider Morningstar expects gold jewellery purchases to eclipse demand from financial institutions, such as central banks and exchange-traded funds (ETFs), by 2020.

In its latest publication ‘Basic Materials Observer’, Morningstar analysts said they expected jewellery would account for two-thirds of gold demand by 2020, up from a 50% share in the last five years, while the share of gold purchases from central banks and ETFs would decrease to less than 5% in the same time period.

"During the next five years, there will be a profound shift in the nature of gold. It's transforming from not just a financial commodity, but to a consumer one. Over time, jewellery purchases of gold will overshadow the importance of gold buying by financial institutions," Morningstar equity analyst Kristoffer Inton stated.

He added that, despite worries about higher interest rates negatively affecting investor demand for gold, Morningstar believed jewellery demand provided long-term support for gold prices and that there currently was an opportunity for investors to buy gold mining stocks at a discount to their fair values.

During the next five years, Morningstar analysts forecast a 4.7% compound annual growth rate in total physical gold demand, led by Chinese and Indian jeweller purchases.

Morningstar analysts forecast a gold price of $1 160/oz in current 2015 dollars, or $1 300/oz unadjusted for inflation, by 2020. As of Wednesday, gold traded at $1 072.30/oz. However, gold prices were expected to slip below $1 000/oz in 2016, owing to higher US interest rates and continuing deflation of mine operating costs.

Analysts expected prices to recover in 2018 and 2019.

Morningstar noted that global mine output would need to increase by about 5%, or 200 metric tons, in addition to projects already in development to meet expected demand by 2020.

Morningstar advised that Barrick Gold, Eldorado Gold and Goldcorp were the most attractively priced investment opportunities in the industry at the moment. “Current equity market valuations appear to reflect expectations of gold prices below $1 000/oz over the long term, which is lower than Morningstar's forecast,” the analysts opined.