Broker's Notes: Gold likely to recover lost momentum

Dubai:  Gold held steady on Wednesday, after falling nearly 3 per cent in the previous session following China's surprise interest rate hike, and prices are supported by bargain-seekers. Holdings in the SPDR Gold Trust slipped less than one tonne to a one-week low of 1,300.089 tonnes. In other markets, industrial metals pared sharp losses in early trade. Gold is expected to partially recover its sharp fall by rebounding to $1,351, as a strong support is observed at $1,329 per ounce. A Fibonacci retracement on the rise from $1,236.55 to $1,386.75 reveals that the 38.2 per cent level at $1,329 would provide a support and hold up the fall. The rebound would push the price up to $1,351, the 50 per cent Fibonacci retracement level on the fall from $1,374.50 to $1,328.30, while a fall below $1,328.30 would open the way towards $1,311.

US dollar

The dollar dipped against a basket of currencies on Wednesday, trimming gains it made after a surprise rate hike by China spurred the market to lower risk exposure, but was seen likely to stay supported due to the potential for further short-covering. The dollar index dipped 0.2 per cent to 78.041 after climbing more than 1.6 per cent the previous day. But its breach of resistance near 77.93, its October 12 high, and through 77.894, a 23.6 per cent retracement of its August-October slide, could pave the way for a move to the 78.96-98 area, which would be a 38.2 per cent retracement of that August-October drop. Investors had increased their bets against the dollar in recent weeks on heightened market expectations for the Federal Reserve to unveil a second round of quantitative easing as early as November.

Australian dollar

The commodity-sensitive Australian dollar rose 0.4 per cent to $0.9744 regaining a bit of ground after sliding more than 2 per cent on Tuesday. Investors had trimmed some of their risk-taking positions on Tuesday after China raised interest rates by 25 basis points in its first tightening in nearly three years. The move spurred concerns that it may mark the start of a more aggressive phase of monetary tightening, dampening Chinese and global growth and denting its voracious demand for commodities. Traders had fretted that the yen could strengthen broadly if Chinese and Asian shares were to fall sharply, but as it turned out Chinese shares edged up 0.7 per cent after having fallen initially.

Crude

Oil rebounded on Wednesday in reaction to the previous session's drop, the biggest since February after China surprised markets by raising interest rates for the first time in nearly three years. It seems there was a very knee-jerk reaction to the China move across all commodities, and now people are starting to step back and think about what it actually means for Chinese growth. China, now the world's largest oil user, has been the main driver of growth in the crude market so far this year, as imports soar, while an inventory overhang in top consumer the United States has dragged the market lower. US crude reached a five-month high above $84 on October 7 on expectations the Federal Reserve would this year embark on a second round of expansionary monetary measures to boost growth.

Rupee

The Indian rupee rebounded from a weak start on Wednesday as foreign inflows toward a $3.5 billion Coal India IPO gathered momentum. The dollar's weakness against majors also helped. The institutional portion of the Coal India IPO, the country's largest ever, closes on Wednesday, while retail investors have one more day. The sale was oversubscribed on Tuesday, the second day of the four-day offering, driven by strong investor demand and lower-than-expected pricing. Traders said there would be an outflow of funds when Coal India begins to refund excess subscriptions and this would push the rupee lower. The rupee has climbed 6.2 per cent since the start of September, thanks to foreign equity inflows of nearly $10.8 billion. For the year to date, it is up 5 per cent on record $23.5 billion foreign fund flows into shares.

Source: Richcomm Global Services DMCC, Dubai