The commodity analysts of BCA Research said intensifying geopolitical conflict could provide critical support for gold and push prices exceed $2,000/ounce.
In a research note published late last month, its year-end gold price target to $2,000/ounce as the wartime economies were established and risks of "fiscal dominance" continue to mount.
Robert Ryan, BCA's chief commodities and energy strategist and lead author of the latest report, wrote: "The risk of fiscal dominance, when monetary authorities peg rates at low levels, will intensify as government policy driven by environmental and defense imperatives continues to expand in the West."
Ryan noted that economic conditions continue to deteriorate while geopolitical uncertainty rises. He added that in the current environment, he does not see the Fed raising rates above 5% this year.
Meanwhile, the BCA expects the ongoing conflict in Ukraine to continue to rattle commodity prices, keeping inflation on the rise.
Ryan added that market volatility, Western nations’ efforts to develop green energy infrastructure and increased defense spending will continue to support higher inflation.
Analysts said they expect headline inflation to hover between 4% and 5% over the next few years.
"Commodity prices will also remain volatile this year due to market intervention by governments, especially in the EU," the analysts said in a note.
Another positive aspect for gold is the US Dollar. The BCA said there would be a small increase in petro-yuan transactions as nations buy oil in China's currency.
BCA said that although this trend won't see massive growth this year, it is still enough to disrupt the US dollar's status as a world's reserve currency. And the weakening US dollar has reduced the headwinds for gold prices.
“Our geopolitical strategists do not expect Saudi Arabia to store the bulk of its wealth in currencies other than the dollar,” the analysts said.
BCA also noted that the global de-dollarization trend is expected to support gold as central banks continue to diversify their assets in 2023.