Daily Gold Fundamental Analysis April 27

By Commoditiesmansion.com – Gold slumped on Tuesday with the normalizing trading volume in markets as investors return from the long Easter weekend. The main driver for the market movement is still the Federal Reserve and the outlook for monetary policy and investors were jittery ahead of the decision.

The high uncertainty in the market over the coming move by the feds triggered profit taking on the metal after it rallied to a new record on Monday with the start of the week. The fragile greenback was not a supportive agent as gold’s appeal was seen threatened with the expectations the Feds will end the QE II and that was the diluting agent for greenback and a source of demand on gold.

Jitters are the main highlight and with the FOMC decision on Wednesday all eyes are locked on the market. The risk appetite is a key element and so is Bernanke’s press conference for signs of shift in rhetoric and new projections for growth and inflation.

We surely see downside pressure on the metal for the end of the second round of quantitative easing, yet we do not see lasting pressures! The gold is still as bullish as even and either way the feds will play it, they will still support gold gains.

First, the end of QEII is likely not to change the feds dovish stance and low rates, which will keep the dollar weak and demand on gold. Any upgrade on inflation and growth will be also seen as hawkish and inflationary which will trigger gold demand as hedge against inflation.

While on the other hand, the only interim support for the dollar will be a downbeat tone on the growth outlook with subdued inflation pressures -which Bernanke is likely to call commodity induced and short lived- which in role will increase risk aversion to the benefit of a dollar buy-back and temporarily pressure gold down as the metal has been demand as haven opposite to the dollar not with it. Nonetheless, haven demand will eventually return to gold and only shortly pressure it as the metal remains the best alternative investment.

Therefore, a heavy day awaits the precious metal on Wednesday and the focus remains on the Feds decision at 16:30 GMT and Bernanke at 18:15 GMT.