Physical gold investors have been taken for quite the ride over the past year. Spot gold prices are up less than 1% on a trailing 12-month basis through May 22nd, but have seen a $237 per ounce variance between their highest and lowest closes over the trailing year.

Since 2016 began, physical gold and gold stocks have been pretty solid investments, with physical gold gaining about 19% and numerous gold stocks rising by well over 100%. In fact, the VanEck Vectors Gold Miners ETF, which is a basket fund with holdings in 53 mining stocks, is up by 69% since the beginning of 2016. This outperformance is what's been attracting investors to gold and gold stocks.

But the question on everyone's minds is: can it continue?

Though no one knows with any certainty, we can narrow down the factors that are most likely to influence the movement of gold prices in the near term. Here are the yellow metal's likeliest catalysts in the second half of 2017.

A chart symbolizing rising interest rates  with the line represented as a dollar bill.

Image source: Getty Images.

1. Federal Reserve monetary policy

The Federal Reserve is easily the most front-and-center driver of gold prices. Through its monetary actions the Fed can influence the federal funds target rate, and thus interest rates in the United States. And interest rates are the key to deciphering the age-old trade-off known as opportunity cost.

Opportunity cost describes the action of giving up a near-guaranteed gain in one asset for the opportunity to earn a larger return (with more risk) in another asset. Physical gold has no dividend yield, meaning there are no guaranteed returns with the yellow metal. On the other hand, U.S. Treasury bonds do have a near-guaranteed return. If yields on Treasuries are low (so low, in fact, that real-money gains are minimal after accounting for inflation), investors may be coerced to bypass bonds in favor of gold. This is known as low opportunity cost. If, however, interest rates rise significantly, the opportunity cost of forgoing a healthy return with bonds rises, meaning investors are more likely to sell gold or overlook gold in favor of bonds.

Currently, the Fed is in a monetary tightening phase, which could be seen as bad news for gold. But it's also lifting interest rates from historically low levels. Even now, after three 25-basis-point increases in the Federal funds rate, the Fed is still a full 200 basis points below its long-term fed funds target of 3%. How the Fed approaches its tightening (i.e., expediency and language) will certainly have some bearing on how gold performs in the second half of the year.

A young couple horrified by high prices on their receipt.

Image source: Getty Images.

2. U.S. inflation rate

On the complete opposite end of the spectrum are inflation rates, which have a tendency to act as a check for monetary tightening.

Inflation, which measures the rising price of a basket of goods and services, is almost always associated with a growing economy. As the U.S. economy expands, the Fed increases the money supply, which, in turn, dilutes the value of existing money in circulation and makes goods and services, including spot gold, pricier for the consumer.

Generally speaking, higher inflation rates tend to coerce investors to buy gold as a safe-haven investment. There's only a finite amount of gold on this planet, whereas money can be printed and devalued at the flip of a switch. Thus, the U.S. inflation rate could have some major bearing on how gold performs in the second half of the year. If inflation remains in the mid-2% range (which is below historic norms, but well above normal since the Great Recession), gold could thrive.

President Trump speaking to Department of Homeland Security employees.

Image source: U.S. Department of Homeland Security, Flickr.

3. Trump's tax plan/economic initiatives

Precious metals usually thrive as a safe-haven investment during times of uncertainty. Topping the list of uncertainties in the second half of 2017 is whether President Trump and Congress can produce a passable tax reform/economic growth plan.

On one hand, higher growth rates derived from tax reform, and economic initiatives would presumably lead to improved economic certainty, which gold investors tend not to like. Even with a possible boost in gold demand from a growing economy, gold investors tend to sell situations where economic growth is picking up.

On the other hand, Trump has shown at times (e.g., healthcare reform) that there's a definite rift between him and Congress that could make coming to a tax deal difficult in 2017. Any sort of uncertainty or loose ends regarding tax reform would probably be viewed positively by gold investors.

The wildcard here is what might happen with regard to a border adjustment tax. A border adjustment tax would incentivize U.S. companies that export with a tax rebate and punish importers with an added tax. Most pundits have agreed that the border adjustment tax would lead to an appreciation of perhaps 15% to 25% in the U.S. dollar within a couple of years. This matters because the U.S. dollar and gold tend to have an inverse relationship. In other words, if a border adjustment tax becomes law, and gold and the U.S. dollar behave in textbook fashion (which doesn't always happen), gold could take a hit.

A man wearing a British flag shirt and glasses stands in front of Parliament.

Image source: Getty Images.

4. Brexit uncertainty

If Trump's tax reforms are tops in terms of uncertainty drivers in the second half of 2017, the uncertainty surrounding Britain's exit from the European Union ("Brexit") is a close second.

Last summer, Brits surprisingly voted to leave the EU, which means Britain will have to set up a host of new trade deals with its EU neighbors. But Article 50, which Prime Minister Theresa May recently invoked, has just a two-year time limit. This doesn't give the U.K. a lot of time to get its financial affairs in order.

Perhaps more importantly, Brexit is exceptionally complex, and there is no precedent to such an event. Removing Britain from the EU means sorting out a number of Britain's outstanding obligations to scientific research and other social programs collectively funded by the EU. Some pundits have suggested that there's a real possibility of a mild recession in the U.K. as a result of the uncertainty caused by Brexit.

Gold's movement could depend on the complexity and length of time Brexit is drawn out.

Gold bars stacked next to each other.

Image source: Getty Images.

5. Supply and demand for gold

Finally, it's important for investors to remember that supply and demand still matter.

During the first quarter, investment demand for gold saw a pretty steep drop-off from the prior-year period. According to the World Gold Council (WGC), total investment demand plunged 34% from Q1 2016, with demand from ETFs down a staggering 68%. However, total bar and coin demand rose 9%, with double-digit increases seen in China and India. Though investment demand was down year-on-year, the WGC is quick to note that Q1 2016 offered special circumstances, with gold rising at its quickest quarterly pace in 30 years. Take away that increase in demand and Q1 2017 investment demand was still "robust." 

Gold supply will also come into play. Most publicly traded precious-metal miners have significantly reduced their capital expenditures since gold peaked in 2011 at $1,900 an ounce, meaning production growth hasn't kept pace with demand growth. Often that's a recipe for higher gold prices. But as the price of gold increases (and it's up $200 an ounce since Jan. 2016), the desire to boost production may rear its head, too.

The interplay of supply and demand could be a catalyst for gold prices in the second half of the year.

Sean Williams has no position in any stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy.