Broker's Notes: Gold inches down even as dollar remains weak

Gold

Gold inched down on Wednesday despite a weaker dollar as investors stayed on the sidelines before an expected US Federal Reserve decision to pump hundreds of billions of dollars into the sluggish economy.

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.

Disenchanted US voters swept Democrats from power in the House of Representatives and increased the ranks of Senate Republicans on Tuesday in an election rout that dealt a sharp rebuke to President Barack Obama. Weaker gold prices failed to attract interest from jewellers, while sales of scraps from speculators also came to a halt.

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.

Euro

The euro traded as high as $1.4058, buoyed by a pick-up in euro zone manufacturers' output. It was last up 1.1 percent at $1.4038. Hourly momentum in euro/dollar is bullish, but very overbought, suggesting $1.4045/$1.4080 resistance will likely hold in the near term. Renewed worries about euro zone's sovereign debt issues could also limit the euro currency's upside.

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