It’s only been a month since we last ran the slide rule over the price of gold, but considering the explosive move seen since then, it is worthy of another visit.

At its recent peak on the 11 February, the price of the precious metal had surged by nearly 20% for the year to date, no mean feat in only six weeks. So after years of falling prices, could this mark the beginning of a major shift in direction?

By 2011 gold had enjoyed an incredible decade, rising seven-fold to $1,900 per ounce. This relentless move higher had turned into a one-way bet for many investors, with forecasts of an ultimate target of $5,000 being bandied around at the time.

Nothing moves in one direction permanently and 2011 proved to be ‘peak gold’, for now at least Since then the price had slid, hitting a multi-year low of $1,050 by last December. It had looked like this year was set to be yet another one where gold continued to disappoint any longer term holders.

Safe haven, or not?

The role of a ‘safe haven’ destination for cash is one that gold has traditionally performed throughout history; when in doubt, buy some gold bars.

With stock markets climbing in recent years, the safe-haven status was shunned and money sought out much better returns. But as stock markets made an abysmal start to 2016, it appeared that many were looking for a less risky home for their cash and boosted the price of the precious metal.

Falling share prices have clearly been a major factor behind the recent sharp rise in the price of gold. Fanning the flames of that rise has also been the sort of shares that have been heavily hit, namely the financial sector.

Familiar worries have emerged about the stability of some European banks and this clearly spooked investors about the potential (no matter how slim) for a financial crisis, part two. Gold once again became the destination of choice in times of trouble.

(Click on charts to enlarge)

Dollar direction

Weakness in the US dollar has also played its part. The US central bank raised its interest rate in December 2015. We are only two months into 2016 and already there are murmurings from the Federal Reserve that the economy is maybe not as strong as they thought.

There is a strong belief in markets that there is a good chance of no more US rate rises this year. This has taken away some of the attraction of the US dollar, and a slide in this currency boosts the price of gold.

Back in the 28 January 2016 issue the view was the price of gold could run to $1,190, and maybe even higher, but $1,250 was the big level to watch.

In the end, the price actually hit $1,263 before dropping back. This has put a dent in the three-year falling trend, suggesting that we may indeed be seeing signs of a longer term change in sentiment.

The dust needs to settle a little following this recent surge but it does look as if, for the first time in a very long time, the time has come to approach gold differently.

Maybe we need to at least start thinking about adopting a ‘buy the dips’ approach rather than just selling into strength and assuming the weakness is going to continue. Alternatively, if you still believe that this rise is nothing but a flash in the pan, then selling short with a stop loss above the February high at $1,263 seems to be the logical trade for the bears.