(Kitco News) – Gold’s volatile push above $2,400 last week could represent the precious metal’s high water mark for the year as markets adjust to expectations that the Federal Reserve will maintain its aggressive monetary policy longer than expected, according to one research firm.

Caroline Bain, Chief Commodity Economist at Capital Economics, said in a report published Friday that although she is bullish on gold for this year, the price has run well beyond expectations, and she expects prices to fall back to earth by the end of the year.

“The 16.5% surge in the gold price since the start of the year appears increasingly out of kilter with the interest rate outlook,” Bain said in her latest research note. “Indeed, the strong US employment report last Friday and Wednesday’s March CPI print, which arguably suggested rates could be higher for longer, coincided with rises in the gold price, while Treasury yields and the US dollar also rose.”

Bain said she is maintaining her year-end gold price target of $2,100 an ounce. At the same time, she sees silver prices ending the year at around $26 an ounce.

Although gold is down from Friday’s high, the precious metal continues to hold solid gains in record territory. June gold futures last traded at $2,394.10 an ounce, up nearly 1% on the day.

Bain said that although geopolitical uncertainty surrounding the growing chaos in the Middle East has generated safe-haven demand for gold in recent weeks, it’s not a sustainable trend.

“Other safe-havens, such as the Swiss Franc, have not been performing strongly, and there have been persistent outflows from European gold ETFs,” she said.

Blain said that the biggest driver for gold this year, which has helped the precious metal defy the headwinds from shifting monetary policy expectations, has been physical bullion demand in  China.

She noted that premiums on the Shanghai Gold Exchange recently hit record highs vs London-listed prices. However, she added that she expects demand to weaken through year-end.

“Chinese investor interest in gold is not so surprising given that potential investment opportunities in China have narrowed given the downturn in property valuations and plunge in equity prices there over the past couple of years,” she said. “That said, we expect the Chinese frenzy around gold to eventually fizzle out, and for the more traditional drivers of prices to take up the reins later in the year. In part, this view is based on our forecast that Chinese equities will partially recover in the coming years.”