Broker’s Notes: Gold holds steady as dollar plummets

Gold & Silver

Gold held steady on Thursday after touching record highs for the fifth consecutive session, and silver hit a 2-½ year peak, as economic uncertainties boosted investor appeal for these safe-haven assets. Most market participants expect gold to break through the psychologically important $1,300 level soon as market sentiment rides high on worries about the health of the economy, even though the market has been overbought.

Dollar

The latest data out of the US shows a housing market that continues to struggle. Demand for home loans fell for a third straight week last week while prices for single-family homes retreated further in July as the market struggles for balance with less government support. The US is due to release the weekly initial jobless claims, as well as existing home sales and lead indicators later in the day, which might provide further evidence of a sluggish recovery. The US dollar hovered near its 6-month low against a basket of currencies, as talk the Federal Reserve will soon start printing more of the currency drove down Treasury yields and dragged it to a five-month low on the euro.

With market players positioning for more quantitative easing expected from the Federal Reserve later this year, the US dollar has been pummelled across the board this week and was at six-month lows against a basket of currencies. The dollar index broke support just above 80.00 on Wednesday but was finding more support at 79.50-70, with chartists expecting some consolidation before it heads down. It briefly breached 79.70, the 61.8 percent retracement of its move up from 74 in November last year to its June high above 88. If the breach does not prove a false break, some chartists see a move down to last December's interim peak at about 78.45.

Yen

Against the yen, the dollar was holding at 84.55 yen. It fell as far as 84.27 on Wednesday before the danger of intervention helped it steady.  Japanese markets are on holiday on Thursday but there was talk on Wednesday the Bank of Japan was checking with local banks to see how they would be staffed, keeping alive the risk of yen sales. Tokyo intervened in currency markets for the first time in six years on Sept 15 but has not been seen selling yen since. Japan's Prime Minister Naoto Kan meets President Barack Obama later on Thursday, where the topic of intervention may come up.

Sterling

Sterling hit a four-month low against the euro and a two-month trough versus a currency basket on Wednesday after Bank of England minutes showed policymakers were more willing to consider further monetary easing. The market talk of more QE in the United States intensified the impact on sterling of the BoE's minutes, which showed policymakers felt the case for more easing in the UK had strengthened. Most BoE policy board members thought there were risks to the outlook on both sides and stood ready to respond in either direction. In a television interview on Tuesday, BoE policymaker Sentance, widely known as a policy hawk, said the start of an economic recovery and above-target inflation bolstered the argument for a gradual rise in interest rates

Oil

Oil was steady below $75 on Thursday after government data showed an unexpected increase in US crude and gasoline stockpiles, ahead of key jobs and housing reports later in the day.  The inventory increase last week, despite the eight day-long shutdown of the biggest pipeline shipping Canadian crude to the US, reaffirmed views that prices would mostly remain rangebound for the rest of the year between $70 and $80, the preferred level for Opec producers.

The Organization of the Petroleum Exporting Countries should keep its oil output targets unchanged at a meeting next month and comply more closely with its production agreements, the top oil official for Opec member Libya said on Wednesday. The Energy Information Administration said that the US total petroleum stockpiles climbed to a record 1.144 billion barrels last week, the highest level since it began collecting weekly data in 1990. The nation's crude inventories rose 970,000 barrels in the week to Sept. 17 as imports increased, according to the EIA.

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