Broker's Notes: Dollar inches up; gold may reach $1300 this year

US Dollar/Yen

US dollar inched higher against the yen on Friday on the Dubai Gold and Commodities Exchange (DGCX), trimming earlier losses due to wariness on possible measures from Japanese authorities to stem the yen's rise. Prompting these jitters was a Kyodo news agency report saying Japanese Prime Minister Naoto Kan will hold a news conference on Friday on the government's steps to cope with a recent surge in the yen. Separately, Japanese Finance Minister Yoshihiko Noda reiterated that the government will take appropriate action on currencies when necessary.

Despite the risk of possible action by Japanese authorities to curb yen strength such as yen-selling intervention or monetary easing by the Bank of Japan, few investors say the yen could test a record high of 79.75 yen to the dollar, hit in April 1995, later this year.   The fate of the yen will depend on the overall trend of the U.S. economy rather than the possibility of BOJ intervention. The solo yen-selling intervention by Japanese authorities would amount to little more than a drop in the ocean, since the driving force behind the yen's rise is mounting worry that the U.S. economy is headed for a double-dip recession and the Federal Reserve may boost quantitative easing.

Today’s focus is what Federal Reserve Chairman Ben Bernanke may say on the U.S. economy when he speaks later on Friday at the annual Federal Reserve conference in Jackson Hole, Wyoming. Investors will be watching to see whether the Fed's views on the economy have become bleaker since its policy meeting earlier in August. The Federal Reserve announced plans earlier this month to boost a flagging economy by reinvesting money from maturing mortgage bonds in government debt. Market players say the Fed's pledge to maintain asset purchases and shift to Treasuries suggests it may boost the size of its already massive $2.3 trillion balance sheet if the economy loses momentum.

Gold

GFMS, a internationally renowned bullion consultancy agency has came out with a report that gold is headed for a 10th annual gain and may reach at least $1,300 an ounce this year as investors seek a shield against financial turmoil, weak currencies and inflation. Earlier the World Gold Council said that Bullion demand increased 36 percent in the second quarter as investors boosted purchases of gold-backed funds and pushed up prices to a record during Europe’s sovereign-debt crisis. Prices have rallied 13 percent this year and reached a record $1,266.50 on June 21 as investors sought to protect their wealth against financial woes in Europe and the prospect of slowing economic growth. Silver doubles as a store of value for investors concerned about the economy and as a raw material. Industrial applications including electrical conductors and batteries account for about half of demand.

Oil

Crude oil is headed for its third weekly decline as a slowdown in U.S. manufacturing added to concern that the economic recovery is faltering. Crude oil futures on the Dubai Gold and Commodities Exchange (DGCX) dropped as much as 49 cents, or 0.7 percent, to $72.87 a barrel and is at $73.15 at 11:06 am UAE time. Yesterday, the contract rose 84 cents, or 1.2 percent, to $73.36 a barrel. Prices have dropped 0.7 percent this week and 8 percent since the start of the year. U.S. second-quarter gross domestic product growth may be revised down to 1.4 percent from 2.4 percent earlier, according to a News survey of economists.

Indian Rupee

The Indian rupee moved in a tight band on Friday, with mild losses in shares providing little direction and as traders awaited the Federal Reserve chairman's thoughts on the U.S. economy. Shares were down about 0.2 percent with outsourcers leading the decline, taking cues from weak regional markets. The index of the dollar against six majors was marginally lower. In today’s session we expect the rupee to hold in a range of 46.80-46.90 unless the local share market falls sharply.

Source: Richcomm Global, Dubai, www.richcommglobal.com