In February, gold grew by more than 5%. It sparked euphoria in the precious metal market. Some economists believe that gold is entering a super cycle, while others predict a bear market.

According to Bloomberg, gold jumped by 5.8% this month. The price managed to break above the $1,900 level. Notably, gold has been unable to rise above this level since last summer.

Gold advanced above this resistance level last week amid rising geopolitical tensions.

The escalation of the conflict between Russia and the West over Ukrainian pushed gold to multi-month highs and a yearly high.

Immediately after the recognition of the independence of the DPR and the LRC by Russia, gold appreciated to $1,914 on Tuesday morning, the highest since January 2021.

However, its rally was short-lived. The quotes went down after the Us and EU imposed sanctions. Yesterday, US President Joe Biden announced the first package of sanctions against Russia as well as Donetsk and Lugansk People's Republics.

The European Union and the UK also introduced sanctions against Russian banks and high-rank politicians. Meanwhile, Germany has stopped the certification of Nord Stream-2.

As investors are now assessing the impact of new sanctions on global markets, gold is falling. On Wednesday morning, the price dropped below the $1,900 mark.

An increase in US Treasuries also took the shine of gold. Government bonds rose on expectations that the Fed would raise the interest rate sharply and quickly to curb high inflation.

Nevertheless, the central bank has not yet voiced its long-term plans on monetary policy. It is also unclear how events in Ukraine will develop in the future.

This is why it is hard to predict the trajectory of gold in the medium and long term. As a result, there are now sharp price sowings. Analysts forecast two scenarios:

Optimistic scenario

Market strategist Chris Vermeulen is confident that gold will continue to rally in the near future thanks to geopolitical risks. "I think we're coming into a pretty major supercycle in precious metals. I think we started back in 2019 and this is about a five-year cycle for gold, and it has been a very tough year for equities, we've had a very long bull market, I think things are getting a little long in the teeth in terms of the equities side," he said.

By the end of this year, Vermeulen believes that gold may climb to $2,700. In 5 years, gold will cost $7,400 per try ounce.

The precious metals market will resume a steady rally as investors begin to move away from risky assets.

Even now the commodity market is experiencing a robust recovery as stock markets gradually move to the final stage of a very long upward trend, the strategist stressed.

In addition, Vermeulen expects the US dollar to grow amid deterred demand for stocks. Gold is unlikely to decline after the strengthening of the US dollar.

"We can still see the US dollar and precious metals rallying together. They're both seen to me as a very defensive play, a kind of global asset. When people get nervous, doesn't matter where they are in the world, they'll liquidate, and they tend to move to the US dollar. We've seen this happen all the time," he said.

Pessimistic scenario

UBS strategist Joni Teves expects the current rally to be short-lived. "We are expecting gold prices to head lower towards the end of this year," Teves noted. "We do think that this strength should ultimately be short-lived."

"We do think prices can stay elevated as geopolitical risks linger," she 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," she pointed out.

In March, the Fed is expected to hike the interest rate to cup rising inflation. Teves is sure that monetary policy tightening will have a negative impact on gold. Gold usually falls when central banks raise the key rate.

Expectations of higher interest rates are boosting US Treasury yields. As a result, gold declines significantly.

Therefore, UBS is pessimistic about gold right now. The bank believes that by the end of the year, the quotes will fall by about 15%. Gold is expected to trade at $1,600.