Broker's Notes: Gold holds steady; dollar edges lower

Gold

Gold held steady on Monday below a record high, and market sentiment stayed buoyant on speculation of more quantitative easing in the United States, as investors worry about the economic recovery. The Federal Open Market Committee (FOMC) will meet for a day on Tuesday to take a decision on US interest rates and issue a policy statement about the economic outlook. The Fed is expected to tread water with a renewed promise to keep its portfolio from shrinking but no new steps to ease monetary policy. Weak data out of the US on Friday helped push gold to a new all-time high. Underlying US inflation pressures were muted in August and consumer morale hit a 13-month low this month, keeping alive fears of deflation and spurring bets on further monetary easing. On the physical market, demand is expected to stay strong in the next few months, especially out of China. India is nearing a peak festive season in the coming weeks.

US dollar

US dollar edged lower in the early trades of Monday ahead of the Fed meeting tomorrow. The Australian dollar was a notable gainer with steady demand lifting it around half a cent through the morning to stand at $0.9411 within striking distance of two-year highs at $0.9469. The US dollar has been in decline ever since the idea of Fed printing more money was revived last month and its fall was only partially arrested by heavy intervention from the Japanese.  If the Fed decides to give more hints it is about to embark on more QE, the US dollar slide will probably continue On the other hand, if the Fed left its policy statement pretty much unchanged, the market might have a re-think about the probability of more monetary easing ahead. The dollar index is currently trading at 81.47, having shed 1.6 percent last week. It would have lost more if the euro had not been struck by a fresh round of debt concerns in the euro zone, this time stemming from Ireland's banking system which is bleeding money.

Euro

Euro held firm above the 1.3050 mark as the dollar weakened against a basket of currencies. The Irish government denied the latest rumours that it might need help from the IMF. Support for the euro is put at $1.3010 with resistance at $1.3165. Euro zone data out this week includes industrial new orders, the manufacturing PMI and Germany's IFO Business survey, while there are debt auctions in Ireland and Portugal. Market sentiment to the major currencies was summed up by the latest Commodity Futures Trading Commission data. They showed investors had increased bets against the US dollar to the highest level in a month, while sharply cutting back net short positions in the euro and sterling. Net long positions in the yen were pared back while the Swiss franc remained well favoured.

Indian Rupee

The Indian rupee on Monday strengthened to a fresh three-month high on dollar sales by banks after the US unit fell slightly in the offshore non-deliverable forwards markets and also boosted by local share gains. One-month offshore non-deliverable forward contracts were at 45.80, weaker than the onshore spot rate. The gap between the onshore spot and the offshore rate had, however, narrowed to about 0.14 rupee as against more than 0.20 rupee seen in recent sessions, suggesting a slightly better outlook for the local currency. The gains in local shares and the dollar's weakness versus majors were also supporting rupee sentiment.

Oil

Oil was steady on Monday after dropping 3.7 percent last week as investors remained on the lookout for signs of sustained economic growth in the US ahead of a key Federal Reserve policy meeting. The front-month WTI contract reached a one-month high above $78 a week ago on expectations of an extended closure of the biggest Canada-US crude pipeline. The shutdown also led money managers to raise net-long crude oil positions on the New York Mercantile Exchange (NYMEX) to almost 114,000 in the week to Sept. 14, up from less than 78,000 in the previous week, the Commodity Futures Trading Commission said on Friday. But prices retreated later in the week in the run-up to the duct's restart on Friday.

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