Gold Price Forecast: After Brexit, Where Is The Precious Metal Headed?

Thursday, June 30, 2016

gold bullion

Now that the market has had a day or two to settle after the initial sell-off started by the Brexit decision, gold investors are left wondering one thing: where do we go from here?

Gold saw an initial jump above $1,300 - leapfrogging what has been one of the psychological barriers for the precious metal to break in 2016, and has since stabilized. And that’s only after a few days. Now that we know Brexit is happening, we’ve seen a brief market correction take place that has stabilized the prices of equities quite a bit. But, it still leaves us with an uncertain economic future.

In order to forecast the price of gold, let’s look at a few different elements.

First Things First: The Context Of Gold Over The Past Year

In order to look to the future, it’s always worth having a look at the past. While we know that gold saw its biggest jump on June 24th, let’s zoom out a little further to get an idea of just how far gold has come over the past year:

Gold price chart

Although the recent jumps have been dramatic, it’s easy to forget that the biggest gains could be found from December to March. You can see the jump in late June, thanks to Brexit, clearly marked in the upper right-hand corner of the chart. The big question: Was the beginning of June (when there were whispers of a Federal Reserve rate hike) gold’s new bottom, and if so, is now the time to buy?

Watching The Federal Reserve

Though Brexit has had a dramatic impact on prices across different markets, it’s easy to forget that it’s also essentially a one-off event. Unless there are other referendums, Brexit’s impact will mostly be isolated. The Federal Reserve’s remarks, and actions, still have a major influence over market decisions, and it’s not going to be any different for the rest of 2016.

What Brexit does, according to Euro Pacific Capital’s Peter Schiff speaking to CNBC, is offer the Federal Reserve a chance to keep interest rates low. Calling it a “getting out of jail free” card, Schiff noted that the Federal Reserve can use the uncertainty with Brexit as a reason to keep rates low, still maintaining a bullish outlook on the U.S. economy - even if economic data doesn’t point to that outlook.

If the Federal Reserve does stick to this policy of maintaining low interest rates, then it appears that gold may indeed stay in the $1,300s for some time. And if there are any further market shakeups, gold will continue to be a hedge investment for anyone looking to get out of the dollar, and out of equities.

Today, the price of gold is up along with major markets and other commodities - the Dow, the S&P, the NASDAQ, even oil. This suggests that many investors are still hanging on to their gold, and even buying it up during the market’s latest correction day. All of this news suggests that a good recommendation for gold may be “buy and hold” until more news breaks.

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Darren Capriotti

Darren Capriotti has been a market analyst for the past decade and is an expert in precious metals. He prides himself on his ability to analyze the market and offer true value to investors with questions about gold, silver, and other precious metals. Highly educated, incredibly passionate, and more accurate than most, Darren offers a true, unbiased look into what investors can expect in the precious metals market. You can reach Darren at dcapriotti@gold-eagle.com.