Gold Weekly Fundamental Analysis April 18-22, 2011

It has been a week since Portugal asked for a bailout from the European Union, putting the country on the same path of Greece and Ireland, with speculations that Portugal may be denied bailout by Finland and Greece to acquire additional aid after bond yields surged to a record and Moody’s Investors Services slashed the country’s debt rating.

Finland Finance Minister said that there is evident chance that his country would block a euro-zone aid to Portugal, which may place obstacles and spread doubts about the ability of the region to sustain financial stability.

Finland is the only European country that needs to acquire a parliament approval to provide loans from the European Financial Stability Fund (EFSF), while other European countries, the government decides.

Finland said that Portugal should restructure its debt with private investor’s involvement, rather than acquiring loans from the (EFSF). Election in Finland is scheduled to be held on April 17, with Eurosceptic parties that oppose bailing out Portugal gain momentum.

Greece currently holds a Baa3 rating by Moody with a “Negative” outlook, as the government prepares to unveil further budget cuts to ensure that the government would meet its deficit targets.

Further restructuring of debt for Greece may be forced on the government, keep in mind that restructuring means “default” on loans; accordingly, the country will be subject to new laws that would make it harder on it to repay its debt.

Debt woes and inflation threats have been driving commodity prices higher, while China’s unexpected growth rate and above than expected inflation levels pushed the metal to record new historic highs near $1,480.0 an ounce.

The metal’s trading would be affected by Manufacturing and Services reports next week from Euro-Zone, to be released Tuesday at 08:00 GMT,

Gold is expected to drop severely to return and trade near 1,420.0 an ounce and probably extend its drop to 1,400.0 and 1,390.0 as investors take advantage of elevated prices and seeks profits; nonetheless, a failure to breach 1,445.0 an ounce would pave the path for the metal to target 1,480.0 and then 1,500.0 an ounce as inflation reports will arrive from Germany, UK, and the Euro Zone, along with current account data that that will be released at 09:00 GMT, which may add upside pressures on the metal to ascend further.

Lack of data from Europe will force investors to shift their attention on BoE Minutes report, which would influence the Dollar’s trading against the Pound, therefore, the dollar, is expected drop and the euro to rise on Wednesday, providing further bullish supporter for the metal.

The Minutes will be released at 08:30 GMT, ahead of housing data from the U.S. to be released at 14:00 GMT which may show further improvement in the sector that initiated the worst financial crisis in more than 70-years.

The BoE Minutes would highlight inflation threats in the country, despite that inflation slowed to 4.0% in March from 4.4%; it is still at double the target set by the BoE for price stability at 2.0 percent.

The metal’s trading next week will witness a bearish movement if a bailout for Portugal is approved as it will weaken the euro and strengthen the dollar that holds an inverse relationship with commodities, conversely, the metal would continue on rising with downside corrections to be noted as investors seek profit from elevated prices, nonetheless, the general trend remains to the upside as far as the metal fails to breach $1,420.00 an ounce.

(Source: http://www.commoditiesmansion.com/fundamental-analysis/gold-weekly-fundamental-analysis-april-18-22-2011/)