Gold prices have remained resilient in the face of broad market volatility in recent weeks, somewhat detached from the typical price drivers of bond yields and the dollar.

Even as 10-year Treasury yields and the U.S. dollar index rose from intra-year lows in late January, the precious metal held above the $1,800 per troy ounce mark.

As of Friday afternoon, spot gold was still trading near the $1800 per ounce mark. Despite a challenging macroeconomic backdrop that includes supply issues, rising inflation and ongoing pandemic risks, Bank of America strategists noted that some investment flows into gold have been very resilient.

“Significant shocks are lurking beneath the fundamentals of inflation, interest rates and currency movements, which increases the attractiveness of holding the yellow metal in a portfolio and supports our forecast of an average gold price of $1925 per ounce for 2022,” BofA analysts said in a research note in late January.

UBS said gold’s resilience is also underpinned by a combination of increased demand for portfolio hedging and a belief that the Federal Reserve is “behind the curve” in fighting inflation or over-tightening, leading to slower growth.

In a note on Friday, strategists at UBS’s chief investment office emphasized that gold’s “time-tested insurance characteristics” reemerged in comparison to other common portfolio diversifiers, including digital assets such as bitcoin.

“On the one hand, the yellow metal’s overall resilience in the face of a hawkish Fed rate hike, money market participants’ move to aggressively price in multiple U.S. rate hikes in 2022, and higher U.S. real rate targets such as 10-year TIPS bonds has surprised some,” the note said.

“But on the other hand, the yellow metal’s resilience is broadly in line with our estimates from our fair value model – currently indicating a value of around $1750 per ounce, which is a modest $50 per ounce discount to spot.”

UBS models show that higher market volatility this year, as signaled by the VIX index, is a key support for gold prices.

“For example, if we plug in the long-term average of the VIX index at 19.5 (all other things being equal), this would imply a gold price of around $1,575 per ounce.

Consequently, as we argued in 1Q22, increased demand for portfolio hedging supports our $1,800/oz forecast,” said UBS strategists Wayne Gordon, Giovanni Staunovo and Dominic Schnieder.

Nevertheless, UBS maintains its expectations for gold prices to fall to a range of $1,650-$1,700 an ounce in the second half of 2022. According to the bank, risk sentiment will improve as the twin threats – the Covid-19 omicron and inflation – subside.

“We recommend clients reduce tactical allocations and protect strategic assets from falling,” they added.

For gold to break above $1800 an ounce, markets may have to lose a little faith in central banks’ plans for policy tightening, according to Russ Mould, chief investment officer at U.K.-based exchange-traded platform AJ Bell.

In a note on Tuesday, Mould suggested this could happen if the economy falls into recession, “when the combination of global debt and higher interest rates proves too strong and policymakers have to return to lowering borrowing costs and expanding QE (quantitative easing) well before inflation is curbed.”