Gold Weekly Fundamental Analysis for May 23-27, 2011

Gold ended last week with the same mixed sentiment and the heavy volatility that remains the dominant theme for gold and commodities in general with the high uncertainty over the outlook.

Gold recovered most of the losses endured in the week and on Friday continued to trade with high volatility with the strong return of the dollar on rising risk aversion and fears over the outlook for the recovery.

We saw the metal surrender its shiny appeal amid the huge profit taking wave and the commodity selloff that pressured the metal below $1500 areas once again and jeopardized the inevitable faith investors had in the metal and its bullishness.

Fundamentally now gold lacks the compass, where the ongoing market volatility and high uncertainty and fears over the recovery and surely supportive for gold gains, nevertheless, the metal is trending on another support and its inverse relationship to the dollar, which is keeping the gains contained yet at the same time losses limited!

At the end of last week on Friday, the dollar rallied and global markets moved strongly lower after Germany’s Bundesbank said the German economy might lose some of the positive momentum and the recovery might slow following what they called an “explosive” start to the year.

That was the spark for what we are expecting for the coming week for gold. If the metal is finally going to break though the rout seen in the past two weeks mainly and the tight trading range and fluctuations, gold must take a side this week as the sentiment is likely to be dominated by the outlook for the global recovery.

If the fear prevails as the strong voice in the market, gold must pick a winning side, either rally on needed haven demand, or simply surrender to the dollar that will likely be the dominant winner. While if the fears eased and the dollar corrected the gains, then the metal is also poised to move to the upside, yet in this case will be merely inline with the ongoing relationship for the past period and will not bring anything new for gold.

The bullion’s long term outlook is still steadily and strongly bullish, yet the metal has lost its path on the way there and the lack of strong momentum and the fear of entering the market on gold are keeping the metal sidelined amid high volatility and uncertainty across global financial markets.

Source: http://www.commoditiesmansion.com/fundamental-analysis/gold-weekly-fundamental-analysis-for-may-23-27-2011/