Delisting of Federal Reserve: Gold Prices See Slump Again?

Gold prices have witnessed a steady decline in the wake of peaks since August last year even hit USD 1676.73 because of strong USD and the surge of the U.S. bond interests in the first quarter. Then they dramatically rebounded to USD 1916.57 as the currency turned to be weak and the inflation was worsening. However, this rally was interrupted and reversed by hawkish messages sent by the Federal Reserve (Fed) after its meeting last week. My friend who is an anchor asked me whether gold prices would experience staggering falls again after the delisting announced by the Fed this time as it did in 2013. Factors playing a dominant role in this concern are discussed herein.

Gold prices started to deadly decline after peaking at USD 1700 in early 2013 and hit USD 1180 in June. The main culprits for this are: on one hand, the Fed embarked on delisting at that time, naturally posing stress to gold prices under the context of the rally of USD; on the other hand, the Central Bank of Cyprus (CBC) attempted to sell out gold to take profits and save the market against the backdrop of the European debt crisis, exacerbating the comprehensive steep slump of gold prices.

At present, the Fed embraces the same opportunity to plan for delisting, which is expected to impose the same stress on gold prices. However, the difference is located in the situation where no central banks intend to sell out their gold reserves this time, causing less severe downward pressure to gold prices as it did in 2013. Currently, the global escalating inflation is conducive to gold as a hedge against its worsening to some extent. It is expected that some speculators may buy gold to ride a wave of the plummet in gold prices.

It is worth noticing that one reason for gold prices reaching a record high last year is that central banks worldwide issued more currencies for quantitative easing (QE), leading to the depreciation which was quite beneficial to gold prices. However, it is predicted that other main industrial powers may follow suit after the Bank of Canada (BOC), the Reserve Bank of New Zealand (RBNZ), and the Fed have turned to be hawkish. In fact, some nations have announced to increase interest rates, including Russia, Brazil, Iceland, Hungary, and the Czech Republic. As a result, gold prices can be affected adversely by interest-rate hikes worldwide and the global trend of delisting in the future to some extent.

In conclusion, influenced by all aforementioned factors conducive to the slump, gold prices may see the massive plunge rife with ups and downs again. The double bottom support level at USD 1676.73 is expected to be exceeded and reach USD 1557. As for the major support level for gold below, the view shared by all is the level at USD 1451, which is hard to say at present. However, it will absolutely a golden opportunity for investors to buy gold if its prices can fall back to this level.