Broker's Notes: Gold holds firm above $1360

Gold

Gold held firm above $1,360 an ounce in Europe, supported by a softer dollar, as traders remained nervous of adding to positions ahead of an announcement on monetary policy from the Federal Reserve. The outcome of the Fed meeting would be bullish for assets such as gold if the central bank commits to buying at least $500 billion in Treasuries over five months, as expected, but we cannot rule out surprises. The outcome of US mid-term elections may not have any direct impact on gold, but it could be positive for the dollar on hopes for more fiscal austerity and reduced government regulation.

Sterling

Sterling hit a nine-month high against the dollar and rose on the euro on Wednesday after UK services PMI data was better-than-expected and reduced the prospects of more quantitative easing from the Bank of England. UK services PMI index rose to 53.2 last month from 52.8 in September, the highest reading since June and confounding analysts' forecasts of a dip. The surprise improvement in the services sector data is expected to weaken the hand of doves within the Bank of England's Monetary Policy Committee who have been calling for a second round of quantitative easing in the UK. The MPC begins a two-day meeting with the decision to be announced on Thursday. Sticky inflation in UK means the Bank of England is likely to keep policy on hold although there is still an outside chance of more quantitative easing.

US dollar

The US dollar stayed on the backfoot on Wednesday, with the euro holding above $1.4 and the Aussie just off parity as the Fed looked set to provide more stimulus to spur a flagging recovery.  A bigger-than-expected stimulus could further weigh on the dollar, while a smaller programme could help the US currency stage a rebound, which could put pressure on bullion. Expectations have centered around an initial commitment from the Fed to buy at least $500 billion in Treasuries over five months, which was less than the $1 trillion size some traders had initially estimated. However, much uncertainty surrounds the scope and pace of the purchases. The US Dollar Index which tracks the greenback against a basket of six currencies hit a two-week low of 76.636 and was last down 0.7 percent at 76.724.

Indian rupee

The Indian rupee strengthened to its highest level in more than two weeks on Wednesday boosted by gains in local shares which raised hopes for more capital inflows while traders awaited the outcome of the US Federal Reserve meeting for cues. The RBI has sent rupee bullish signals; The Fed is also expected to follow suit. On Tuesday, the Reserve Bank of India (RBI) raised its key policy rates for the sixth time since March and said it was unlikely to adjust rates again in the near future but would remain vigilant about inflation that remains above its comfort level. RBI is seen raising rates once more this fiscal year ending in March, according to economists polled by Reuters.

Oil

Oil climbed to a six-month high above $84 for a second straight session after an industry report showed declines in US inventories across fuel categories, a sign chronic oversupply may subside in the world's top user. US crude inventories fell by 4.1 million barrels in the week to Oct. 29, the American Petroleum Institute (API) reported on Tuesday, before the Energy Information Administration (EIA) releases official statistics later on Wednesday. That compared with expectations for a 1.2 million barrel increase. Expectations the Federal Reserve will announce on Wednesday a fresh round of expansionary monetary policy kept the dollar under pressure, helping commodity prices, while Republican gains in the US Congress lifted sentiment in Wall Street.

Source: Richcomm Global Services, DMCC, Dubai; www.richcommglobal.com