Broker's Notes: Gold eases after dream run

Gold fell further on Tuesday after the euro dropped against the dollar as concerns about euro-zone debt resurfaced, while holdings in exchange-traded funds (ETFs) slipped for a third consecutive session. The world's largest gold-backed ETF, SPDR Gold Trust, said its holdings fell to 1,301.913 tonnes by October 4 from 1,302.345 tonnes on October 1. Purchases from Indian gold jewellers showed no sign of slowing down as a strong rupee helped consumers defy record bullion prices during the festive season.

Yen
The Bank of Japan pledged to expand its balance sheet by 5 trillion yen ($60 billion), aiming to shore up the nation’s slowing economic recovery. The central bank will create a 5 trillion yen fund to buy government bonds and other assets, it said in a statement. It also lowered the benchmark interest rate to a range of zero per cent to 0.1 per cent from the previous 0.1 per cent target. The central bank kept its credit programme for banks at 30 trillion yen, and its target for monthly purchases of government bonds at 1.8 trillion yen. In the past few sessions, the currency has been supported around 83.15 yen, as some market players expect Japanese authorities to intervene around that level. Japan sold the yen for first time in six years in the market on September 15 when the dollar hit a 15-year low of 82.87 yen.

Australian dollar
The Australian dollar fell sharply on Tuesday after the Reserve Bank of Australia surprised traders by skipping a widely expected rate hike. The Australian central bank kept interest rates at 4.50 per cent, while the market had priced in a 74 per cent chance of a hike before the announcement. Still, market players say that Australia's hefty yield advantage over other major currencies is likely to support the Aussie. The derivative market is still pricing in another rate hike within a year. In fact the spectre of a further rate increase is in stark contrast with many other developed countries, including the United States and Japan, where monetary easing is discussed to support feeble economic growth.

Sterling
Sterling rose against the euro on Monday as concerns about the health of peripheral euro zone countries weighed on the single currency, prompting investors to trim long euro positions. Better-than-expected construction sector activity data also helped sterling, but analysts said the possibility of additional monetary easing measures to support the UK economy left the pound vulnerable to further falls. Investors remained nervous ahead of Thursday's Bank of England policy decision after policymaker Adam Posen last week advocated a further bout of quantitative easing, although few expect any change as early as this month.

Oil
US crude oil futures ended slightly lower on Monday, snapping a three-day winning streak, as a stronger dollar and weaker US equities weighed on prices. But losses were limited as the market was earlier supported by a strike in France's top oil port and as movements were halted at the key Houston Ship Channel after a barge accident, affecting crude inflows to four large refineries in the area. Gasoline futures ended higher due to the Houston Ship Channel's closure and on perception that the French port strike could limit US imports.

Rupee
The Indian rupee snapped a three-day rally and weakened on Tuesday as the dollar rose against majors on short-covering globally. However, robust capital inflows are expected to limit the rupee's downside. The main stock index Sensex was choppy after rallying almost 14 per cent over the past five weeks to 33-month highs. Foreigners have bought a record $19.7 billion of Indian equities this year, with about one-third of that happening since the start of September.
 

Source: Richcomm Global Services DMCC, Dubai