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Gold (NYSEARCA:GLD) (NYSEARCA:DGP) has rebounded since an end of year sell-off to poke at $1,700/oz. Now with the seasonally strong first quarter almost finished where does the yellow metal go from here?

Unreported by television commentators in the U.S., the ECB has given the 17 national central banks the right to refuse collateral from banks under EU/IMF programs. Quite simply, this means that countries seeking to garner cheap loans cannot continue to use Greek bonds as collateral.

When the aid program was originally developed last year banks had an opportunity to use almost anything as collateral for the loan program. EU policymakers were shocked at what the banks originally submitted as collateral, eventually leading to the Bundesbank to push for revised collateral rules.

In Hungary, the government is playing a game of chicken with the EU over laws passed last year moving up the retirement age for judges, stifling democratic rights, and central bank independence. Hungary needs a revised EU/IMF program in order to help lower borrowing costs but insists on keeping anti-EU laws in place. This dispute has gone so far that the EU has already sued the Hungarian government, with Hungary firing back a 100 page response.

Yesterday, Spain announced that the government ran a deficit of 1.94% of GDP, an increase from 1.29% a year ago, casting doubts on the ability of the government to meet its year-end target of 5.3% and 2013's target of 3.3%. Further clouding efforts is an unemployment rate running at 23.3%.

Next Monday, the Troika arrives in Greece looking to secure another 12 billion euros in cuts or risk losing the second trance scheduled to be released in June. Even if the cuts are found, elections are only six weeks away with the PASOK party, leaders for more than 30 years, now in a five-way horse race for second place.

To underscore the seriousness of the matter, ECB executive board member Joerg Asmussen made this statement yesterday, "The Greek people are not reforming their economy and their state to please the (EU-ECB-IMF) troika."

The most frightening part is that the Troika is not considering a plan B in the event Greece either falls behind or reformers do not win a strong majority in the upcoming elections.

Now we know why Federal Reserve Chairman Ben Bernanke put QE back on the table this week.

As the year continues to go forward the wheels will begin to come off the economic train that is limping down the tracks. Rather than picking up speed the wheels are likely to come off, sending investors rushing to the yellow metal, leading to new highs late this year and early next.

The downside to the yellow metal is limited from here with $1,600 being the floor, while the upside late this year and early next is $2,700-2850 per ounce.

Source: Gold Shines Through The Cracks In The EU Firewall

Additional disclosure: I am have exposure to the 2840:HK SPDR Gold Shares ETF through a tracking ETF.