Gold is trading at its highest levels in over a year, with inflation high and commodities volatile amidst Russia’s potential invasion of Ukraine.
Spot gold, the price at which gold is being sold at a specific time, hit a high of $1,912 per ounce on Tuesday morning. It is a huge rise from the $1,800 that gold was trading for at the beginning of February, and may be close to surpassing $2,000 per ounce for only the second time in the yellow metal’s history, after having done so in August 2020 for the first time.
But despite the rise, one UBS strategist does not believe the surge will last.
“We are expecting gold prices to head lower towards the end of this year,” Joni Teves, precious metals strategist at the investment bank, told CBS Tuesday morning from Singapore. “We do think that this strength should ultimately be short-lived.”
Teves’ prediction matches a forecast for gold prices in 2022 that UBS issued last October. The Swiss investment bank foresaw gold gradually lowering in price throughout the year, hitting $1,700 per ounce by the end of March, down to $1,650 by June, and rounding out the year at around $1,600.
In its initial forecast on gold’s upcoming year, UBS advised “curbing tactical holdings and hedging strategic ones,” but unforeseeable events have dominated the early months of 2022 and reignited an interest in gold.
The main driver of higher gold prices has been Vladimir Putin’s threat of a forthcoming invasion of Ukraine. On Tuesday, the Russian president formally recognized two separatist states in eastern Ukraine and ordered troops to move into the regions, an act that world leaders took as a bellwether for a coming military campaign.
Russia’s threats have already incurred reactions by the U.S. and western European countries, who have announced a series of sanctions and economic measures to penalize Putin, one of which involves the development of the Nord Stream 2 pipeline, a planned natural gas link between Russia and western Europe worth $11 billion.
The sanctions have spooked investors and sent U.S. stocks rolling. The Nasdaq Composite was down almost 2% Tuesday, while both the Dow Jones Industrial Average and the S&P 500 were down well over 1.5%.
In times of market volatility, gold tends to be a safe investment and a desirable asset for investors. During periods of high inflation, like the pandemic-induced one we are living in right now, gold has been seen as a safe bet to guard against rising prices and unpredictable stock markets, as the asset has a history of delivering higher-than-inflation returns.
Gold’s traditional status may explain the current surge in trading activity, but gold’s rate of growth relative to inflation has slowed in recent years, diminishing its role as a long-term hedge.
Teves and UBS predict that a similar trend will play out over the next few months: an intense but brief surge followed by a cooling period as investors quickly turn to other desirable assets.
“We do think prices can stay elevated as geopolitical risks linger,” Teves said. “But our expectation is that ultimately, as geopolitical risks fade, the gold market should revert back to focusing on macro drivers such as real rates, Federal Reserve policy, and the growth outlook.”
The Fed is expected to raise interest rates by March, the first of what may be several rate hikes to occur this year to counter runaway inflation. Teves believes this will likely put a negative pressure on gold and bring its price down closer to UBS’ forecast.
This story was originally featured on Fortune.com