Start the conversation
It was a big week for the gold price, which managed to achieve not one, but two major milestones.
The first was its official return to a bull market, and the second was reaching its highest levels in more than 12 months.
That of course has caused considerably more attention to be paid to gold lately. But it's gold's recent breathtaking action that should cause investors to exercise caution in the very near term.
Gold's bull market looks like it's made a convincing return, yet the recent surge just may be about to take a well-deserved break.
Here's what I'm watching in gold price moves now…
What the Gold Price Did This Week
The gold price this week opened strong at $1,271 Monday. The next day gold opened higher at $1,274, but headed only south throughout the day to close at $1,261.
Wednesday saw gold starting out at $1,255, but it slipped to $1,252 by the close.
But yesterday (Thursday) saw the gold price jump as the European Central Bank announced it was cutting its main interest rate from 0.05% to 0% and cutting its bank deposit rate from -0.3% to -0.4%. As well, the bank said it would expand its QE program from €60 billion to €80 billion monthly.
Despite the amplitude of these easing moves, the euro actually gained against the U.S. dollar from 1.10 to 1.12, and gold popped from a drop to $1,239 at 8 a.m. to reach as high as $1,272 by 1 p.m.
Now let's look at other events that are helping to shape the gold market going forward…
Where the Gold Price Goes from Here
Buying momentum has returned to the gold market. In fact, thanks to the strong upward move since December, gold is now officially in a bull market. That's defined as a 20% rally from a recent low – and that's exactly where we are.
The gold price dropped to $1,050 in December – but this past week has inked the best start of the year going back as far as 1974. Gold prices recently closed above $1,260 for a 20% gain.
There's been so much demand for the precious metal that assets in the SPDR Gold Trust ETF (NYSE Arca: GLD) have ballooned from nearly $20 billion to about $30 billion; a 50% increase in just two short months.
As well, the iShares Gold Trust (NYSE Arca: IAU) actually ran out of shares due to a surge in demand. Since IAU is considered an exchange-traded commodity subject to different rules, an issuance of new shares requires U.S. Securities and Exchange Commission approval. So essentially, the trust's management was overwhelmed by the demand tsunami.
February looks like it may have been a turning point in the gold stocks space…
That's because it was the best month ever for the PHLX Gold/Silver Index (XAU) since its inception way back in 1984.
Contributing further to gold's latest gains has been the weakening U.S. dollar. A quick look at a recent chart of the U.S. Dollar Index (DXY) illustrates this point effectively.
After attempting a third breakout at 100 back in early February, the DXY has continued to weaken, helping to support a higher gold price.
There's been so much relentless and consistent strength in gold since December, and gold stocks since late January, it's hard not to imagine that we're due to hit a soft patch shortly.
My view is gold and gold shares will likely give up some ground in the next few weeks before they return to bull mode. And that may be an attractive opportunity to take a position in this sector.
The Essential Guide to Buying Gold and Silver: Precious metal investing is widely regarded as the best "crisis insurance" for your portfolio. This guide gives you everything you need to know about the best stores of value in history, gold and silver. Read more…
About the Author
Peter Krauth is the Resource Specialist for Money Map Press and has contributed some of the most popular and highly regarded investing articles on Money Morning. Peter is headquartered in resource-rich Canada, but he travels around the world to dig up the very best profit opportunity, whether it's in gold, silver, oil, coal, or even potash.