On Monday, gold tried to reach $2,000. However, during the following two days, it was hovering near a low of $1,940. Gold has become rather volatile. For this reason, many market participants start thinking about whether the game is worth the candle.
At the beginning of the week, gold was trading at a 5-week high. On Monday, it even tested the psychologically important level of $2,000.
The catalyst for such a rapid increase was the worsening geopolitical situation and inflationary risks. Now, investors fear that the escalation of the Russian-Ukrainian conflict could lead to an even greater increase in prices.
However, traders consider gold not only as a hedge against inflation but also as a safe cushion against recession.
Increased inflationary pressure may force the Fed to significantly accelerate the monetary policy tightening. If so, such actions may slow down economic expansion.
The Fed's hawkish stance is a negative factor for the gold market.
The comments of FOMC members about sharper rate increases push higher the main rivals of gold - the US dollar and US Treasuries.
This was the reason why gold prices bounced off a one-month peak on Tuesday. Gold fell by 1.4%. because of a strong US dollar and rising yields of government bonds.
On Wednesday, it continued to move down despite the pullback of the US dollar and a drop in the bond market. Gold shed 0.2% or $3.40, declining to $1,955.60.
The high volatility of gold this week spook investors as they are unable to predict its further dynamic. Besides, gold is vulnerable to many fundamental factors. To this end, it is almost impossible to envisage its short-term movements.
However, the long-term forecast looks clearer. Analysts at the two largest US banks remain bullish on gold. Let's discuss their forecasts.
Bank of America
Currently, gold is trying to consolidate at the support level of $1,960. Even if the asset falls below this level, there is no need to worry, analysts at BofA note.
They believe that gold has a great chance to reach $2,000 until it drops below the level of $1,888.
BofA considers the range from $1,940 to $1,950 as an opportunity for long-term investment. If the price dips below this range, they recommended opening medium-term traders.
The bank remains optimistic about the prospects of gold, betting on a rise to a new all-time high by the end of this year.
Daily, weekly, and monthly price levels reflect a strong increase in gold this year, - the BofA report says. Therefore, the precious metal may reach $2,175.
Analysts also predict a bull run for silver. The asset is forecast to approach $30 per ounce by the end of the year.
Wells Fargo Bank
According to Wells Fargo, it is better not to lose hope in gold amid its disappointing performance compared to some other commodities. The precious metal will certainly assert strength later this year.
Traders will diversify their portfolios by adding gold because of high inflation, geopolitical uncertainty, and negative dynamic in the stock market.
"Despite bitcoin being the most focused on the past year, it looks like 2022 could be the year for gold, «analyst John LaForge noted. "We believe bitcoin beats gold in its ease of use, storage, and verification, but gold can be held physically, is universally recognized, and has one-quarter volatility," he pointed out.
"The bottom line is we still prefer gold and maintain our 2022 year-end target price range of $2,000-$2,100 per ounce," LaForge believes.
Gold supply indicators also show the upcoming rally. Now, the supply is below the five-year average, which has historically been a bullish signal for gold prices. "Historically, each time this has happened, a multi-year gold price rally followed. Clearly, there's no guarantee that this will happen again, but we like that it can happen," LaForge suposses.
