Broker's Notes: Gold reaches higher on firm physical demand

Gold hits an all-time peak for a third straight trading session, rising above $1,358 on Thursday on a weak dollar and after Vietnam said it may allow gold imports if prices keep rising.

Vietnam's central bank said on Thursday it would consider granting permits for gold imports if prices in the domestic market rose "unreasonably high".

Strong momentum is seen continuing for gold's bull run, and a new target at $1,365 for the next 24 hours is established, as ‘Wave 5’ progresses towards the upper channel line resistance. Physical demand stayed buoyant in spite of record high prices, thanks to high demand in India's festive season and from manufacturers that are trying to finish orders before the end of the year.

US dollar

The dollar scythed through the near a 15-year low versus the Japanese yen and an eight-month low against the euro on Thursday on the spectre of more money-printing by the US Federal Reserve as early as next month. The US employment report said private employers unexpectedly shed jobs in September, reinforcing the conviction that the Fed as early as next month will embark on another round of monetary policy stimulus to support the economic recovery.

Australian dollar

Against the Australian dollar, the US currency is on the verge of sliding to a 27-year low, which shot up after surprising strength in the job markets revived talk of a rate hike by the Reserve Bank of Australia. Australian total employment jumped nearly 50,000 in September, more than double estimates for a rise of 20,000, in a stark contrast to unexpectedly soft US private sector jobs data on Wednesday that sparked a fresh wave of dollar selling. Beyond $0.9851, it is likely to test parity with the dollar and then $1.0236, the 161.8 per cent Fibonacci projection derived from this year's range.

Yen

The dollar's latest decline has made many traders nervous about Japanese intervention, as the US currency was flirting with the levels where Tokyo started its first intervention in six years on September 15. Still, some market players speculate that Japan may refrain from intervention ahead of a Group of Seven (G7) policymakers meeting this weekend where the threat of "currency war" is likely to dominate discussion. Fuelling that view were comments from US Treasury Secretary Timothy Geithner on Wednesday that global institutions must persuade emerging nations such as China to let their currencies rise or risk a round of competitive depreciations that would endanger the world economy.

Euro

The euro faces major resistance around $1.3980, a 50 per cent retracement of its descent from a record peak around $1.6040 in 2008 to a four-year low of $1.1876 hit in June. Given the market's fixation with US quantitative easing expectations, however, the euro has more room to gain, especially if European Central Bank President Jean-Claude Trichet makes it clear later in the day that he is not going to join the Fed and the Bank of Japan in pursuit of more monetary easing. Trichet will hold a news conference after the bank's policy meeting, which is expected to keep interest rates on hold at 1.0 per cent.

Crude

Oil rose on Thursday to within a few cents of five-month peaks, supported by expectations that central banks will ease monetary policy to shore up sluggish economies and falling US fuel stockpiles. The prospect of a second round of expansionary monetary policy, known nowadays as quantitative easing stage two, or QE2, hangs upon key US employment reports, with weekly statistics due on Thursday and more comprehensive monthly data on Friday. Adding to the effect of the weaker dollar, US gasoline inventories fell more than 13 times as much as expected last week, government statistics from the Energy Information Administration showed on Wednesday, down 2.65 million barrels in the week to October 1. Stocks at the Cushing, Oklahoma, pricing hub for benchmark West Texas Intermediate (WTI) crude rose for the first time in nearly two months and were up almost 750,000 barrels last week at more than 35 million.

Source: Richcomm Global Services DMCC, Dubai