The USD’s comeback after the Fed Minutes translated in a gold price rejection at the $2,000 level. One of the markets that delivered the best performance during the pandemic, gold made a new all-time high above $2,000 and now stalls at the level.
When all central banks have their interest rates close to zero, correlations in the financial markets tighten. As such, all instruments tend to react in the same extent to different news that impacts the markets.
Prior to the coronavirus pandemic, the Fed had the highest interest rates in the developed world. It raised the federal funds rate back above the two percent level. At the same time, other central banks in the world kept the rates close to zero – or even lower.
For example, the ECB kept the deposit facility rate below zero and the marginal facility rate slightly above zero. The SNB still has the lowest interest rate in the world, at -0.75%, while the RBA and BOE had lower rates than the Fed did. In that context, the USD appreciated, and the gold price was depressed.
It all changed with the Fed joining the easing party. By slashing rates to zero and embarking in new quantitative easing, the Fed leveled the playing field, sending the USD on a death spiral. And, with it, the gold price higher.
The Buffett Top
The investment community cheered the news that Berkshire Hathaway invested half a billion dollars into Barrick Gold – a gold mining company. Buffett entering the gold market is something interesting, as it signals possible inflation ahead. However, the size of the investment is small to Berkshire standards, and when compared with the pile of cash the company has. But at least we have an explanation about one of the reasons why gold had a bid in the Q2 of the year.
Gold Price Technical Analysis
A correction is long due to the gold price. While the price broke above $2,000, it did so without revisiting the apex of a non-limiting triangle. Consider remaining short with a stop at the highs and targeting a move below $1,800.