Gold prices are unlikely to remain above $2,000 per ounce in the long term unless the Federal Reserve shifts its messaging, according to Philip Newman, managing director at Metals Focus. The gold market experienced a surge following banking turmoil, with prices trading well above $2,000 per ounce. However, Newman believes this trend will not last into the second half of the year.

'Gold above $2,000 is driven by how the market views the Federal Reserve's interest rate policy. Also, with the Silicon Valley Bank and then the uncertainty in Europe, with Credit Swiss, we saw a jump in safe-haven buying by retail and institutional investors,' Newman said.

As the market anticipates rate cuts later this year, gold benefits from dollar-negative implications and the reduced opportunity cost of holding the precious metal. Newman explained that more investors are currently going long in gold, with some short covering, pushing gold above $2,000.

The gold market remains highly sensitive to data releases from the U.S., and upcoming readings could contradict market expectations that the Fed is prepared to lower rates. In such a scenario, gold prices could quickly drop.

Newman expressed skepticism that gold would hold at its current level for an extended period, as the Fed has not indicated a readiness to cut rates. He anticipates that the market will eventually align with the Fed's position, leading to a decline in gold prices. 'We see the Fed raising rates again and then holding rates high for long enough that we witness heavy liquidations emerge in the gold market, sending the price lower,' he said.

With June Comex gold futures last trading at $2,020.60, up 0.84% on the day, Newman's scenario may take some time to unfold. He emphasized that the Fed is highly focused on controlling inflation and preventing inflation expectations from becoming entrenched.

Newman suggested that gold's price floor could drop to the $1,700s once a selloff begins. However, if gold can maintain a price above $1,900 for a longer period, it could limit the selling. 'That may mean that the gold price falls less. But we still think the price will weaken considerably,' he added.

Factors that could weigh on gold prices in the second half of the year include weaker central bank gold demand and the market's realization that the Fed remains hawkish, which would be more dollar-positive. 'These factors combined drive gold prices lower, perhaps to $1,700s,' Newman said.

In the short term, there may be enough momentum to push gold to new record highs, but this would require a clear signal of a shift from the Fed. 'You would need to see comments by the Fed that suggest they're reassessing the situation. You'll need something perhaps stronger than just the data releases,' Newman noted.