The news surrounding the precious metals marketplace so far in 2016 has been immensely positive. Spot prices for silver and gold have been rising steadily throughout the year, with occasional periods of leveling off or even shrinking. On the whole, gold and silver are both up from December 31, 2015. The question on the minds of most investors and precious metals enthusiasts is, “where is gold headed next?”

In the immediate aftermath of the Brexit vote back in June, it appeared as though gold and silver were set to shoot higher and stay there throughout the end of the year. The reality of the situation is that both metals may have hit the ceiling for the year, with prices cooling off. Much of this is due to a sense of over-panic in the wake of Brexit, but that is not the only factor that has kept precious metal investors on their toes in recent weeks.

Prices Surged

The weeks leading up to the Brexit vote in the United Kingdom sent prices for both gold and silver soaring much higher than had been seen in recent months. JM Bullion has analyzed Brexit in depth in the immediate aftermath (here) and one month later (here), so we won’t dive into those details again. However, it is worth noting that gold and silver prices surged. Silver cracked $19 per ounce while gold passed the $1300 per ounce threshold, shooting as high as $1342.

As many online analysis sites have noted, gold has been sinking in the past two weeks. According to Gold-Eagle.com, silver fell from $19.30 to $18.63 last Friday, and gold finished the same week down $14 to $1324. As of this writing on September 1, gold is at $1313.62. Though it’s difficult to speculate where gold is headed for sure, the assumption at this point is that a market correction is taking place that will see gold targeted to be at or below $1300 per ounce.

What’s Holding Gold Back?

There’s an old saying that “when the American economy has a cough, the rest of the world catches a cold.” The meaning of this is simple. Small ripples or slowdowns in the American economy, or even positive changes, can have a dramatic impact on the global economy as a whole. While the opposite is also true, that other economies impact the forward momentum of the US economy, the impact is often not quite as severe.

Among the statistical targets the Fed closely tracks are unemployment and price inflation. The Fed actively works to help control these two figures and move them toward a target goal that is deemed healthy for the American economy. The CPI, or Consumer Price Index, which measures inflation, is currently near the 2% target the Fed has set as of August 31, 2016. Official unemployment figures, though hotly disputed, are at or near the Fed’s target as well. What does this mean for precious metals?

Well, the Fed could start to loosen its death grip on interest rates in the US and let the economy walk on its own legs for the first time in nearly a decade. Additionally, there is speculation the Fed might have another target in mind: the dollar’s exchange rate. Interest rate normality is looking like a possibility in the US, and this is happening at a time when the Bank of Japan and the European Central Bank are both imposing negative rates to try and boost those respective economic zones.

The result for the US dollar is good. Exchange rates are improving and the dollar is granting its holders more purchasing power. As JM Bullion has discussed in previous blog posts however, a rising dollar often means a cooling effect on precious metal prices. Remember, generally speaking, economic stability and a strong US dollar cool the demand for gold and silver.

Possible Outcomes

A good roundup of the possibilities for gold and silver through 2016 and into 2017 is available here, but we’ll offer an even shorter synopsis of our own:

• If the US dollar continues to strengthen in the final quarter of 2016, the price of gold will decline accordingly.
• The Euro and European Union are on unsteady ground as Brexit’s aftermath plays out. If the Euro collapses, it could be bad for gold because it would be good news for the US dollar. It’s difficult to decipher exactly how this scenario would impact markets because it’s never happened before.
• The Fed could institute two rate hikes still in late 2016, which could cool off markets all around.

Where gold is really headed is anyone’s guess. The market does remain hot, and prices have shown an overall upward trend throughout 2016. This was aided, in large part, by the impact of Brexit, the instability it created in Europe, and the global security concerns arising from the failed coup attempt in Turkey. At the end of the day, where gold really goes is difficult to predict. The best guess is that it remains at or just below $1300 per ounce.