Broker’s Notes: Dollar rebound takes shine off gold

Gold

Gold slipped on Tuesday after hitting a lifetime high at $1,300 an ounce in the previous session as a rebound in the US dollar prompted speculators to lock-in gains. Although lower prices could stir up purchases from jewellers, gold's failure to stay above Monday's peak could spur more selling from investors. Silver was off a 30-year high, while platinum and palladium tracked stock markets lower. The physical market was calm on Tuesday after seeing demand from top consumer India on the previous day despite record prices.

The struggling dollar got a reprieve on Tuesday, helped by a report that the Federal Reserve was weighing a more open-ended, smaller-scale bond buying programme compared with 2009. Still, many traders think the greenback is in a downtrend given the speculation that any future quantitative easing (QE) by the Fed Reserve, even in a modest form, would probably still be more aggressive than other central banks. The dollar index managed to rally back to 79.95 from the low of 79.60 hit earlier in the session.

Yen

The dollar was hemmed in a tight range against the yen, drawing marginal support from the Nikkei business daily's report that the Bank of Japan may further ease policy at its October 4-5 meeting if it judges growth to be under threat. That weighed on the yen as it revived talk the central bank could undertake more quantitative easing next week by injecting longer-term funds into the money market, or opt for the more controversial move of buying more Japanese government bonds. In the background was continued investor anxiety that Tokyo may intervene if the yen gets up towards 82 per dollar.

Rupee

The Indian rupee pulled back on Tuesday from the previous session's four-and-half-month high as the stock market showed signs of fatigue after a surge. Indian shares seesawed as the market met with resistance after an 11.9 per cent rally this month. Strong foreign fund flows into the stock market in September have been fuelling a surge in the rupee. Foreign Institutional Investors have moved $4.8 billion into shares this month, taking net investment so far in 2010 to $17.7 billion. The inflows had lifted the rupee 1.3 per cent last week, its best rally in three months.

Oil

Crude fell towards $76 on Tuesday ahead of US reports expected to show fuel stockpiles rose in the world's top oil-consuming nation last week. Prices also tracked Asian equities lower on lingering concerns about Eurozone debt, which also boosted the dollar. A stronger greenback renders imports of dollar-denominated oil more expensive for non-US buyers. Accelerating demand from emerging markets and ample inventories in the United States have kept oil in a trading range between $70.76 and $78.04 for the past seven weeks, with limited price fluctuations mostly due to the influence of equity and currency markets.

Source: Richcomm Global Services DMCC, Dubai