Broker's Notes: Gold inches up as Eurozone worries persist

Gold

Gold inched up on Wednesday, with sentiment still supported by worries of more ratings downgrades for debt-ridden European countries and the euro's diminishing appeal to investors. Volume was thin ahead of the year-end holidays and some investors were careful about taking too much position ahead of the latest estimates for US gross domestic product (GDP) for the third quarter due at 1330 GMT.  Gold, which hovers below a historical high of around $1,430 hit earlier this month, rides on fears the debt crisis that has engulfed Greece and Ireland could also put Portugal and Spain under more pressure.  The UK and US release their latest estimates for gross domestic product (GDP) for the third quarter. Growth in the United States is likely to be revised up to an annualised 2.8 percent, from 2.5 percent previously.

IMF and its massive gold reserve sale

The International Monetary Fund announced on Tuesday the completion of the massive gold reserve sale it began a year ago, likely drawing to a close decades of bullion divestment from the public sector. The news had little impact on gold prices as the IMF had already said it sold more than 90 percent of the total 403.3 tonnes by the end of October, but it marked an important turning point for the market, which has been lifted this year by the prospect of further buying by global central banks. It more likely that the public sector - led by central banks in emerging markets, especially China to become net buyers of gold next year as they seek to diversify reserves away from the US dollar and Treasuries. The IMF gave no further details on its sales, which began in September 2009 and quickly found willing buyers among south Asian central banks, including India, which bought half. Others included Bangladesh, Sri Lanka and Mauritius.

Euro

The euro won a reprieve after plumbing new lows on the Swiss franc and Australian dollar on Wednesday but the single currency is seen stuck in a slow descent as a steady drip of grim ratings news erodes confidence in it. The latest blows came from Moody's, which warned it might cut Portugal's rating, and Fitch, which said the same about Greece. A dearth of liquidity and talk of bids by Asian central banks helped limit the euro's fall against the dollar for now.

Indian rupee

The Indian rupee rose on Wednesday, supported by gains in local shares and strong Asian currencies, after easing in early deals, weighed by the euro's losses. Indian shares rose on Wednesday, with financials leading the gains, taking their cues from firm Asian markets.    Foreign funds had dumped a net $588.61 million worth of shares in this month until Monday. Total net foreign fund inflows so far in 2010 stand at $28.4 billion, on top of the $17.5 billion invested last year.

Oil

Oil prices rose on Wednesday to hover just below $90 a barrel, supported by data showing a drop in US oil and gasoline inventories, a winter cold snap in the United States and Europe amid thin trading volumes. American Petroleum Institute data released late on Tuesday in the US showed a large 5.8 million barrel decline in weekly crude stocks, surpassing analyst expectations. The US Energy Information Service will release its US inventory data at 1530 GMT on Wednesday. Oil prices were also supported by chilly weather in northern Europe and the United States, which has increased heating fuel demand. US heating oil demand was expected to average 4.6 percent above normal this week. AccuWeather.com expects temperatures in the US northeast to average mostly below normal for the next week, with slightly milder readings late this month. 

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