Broker’s Notes: Gold reverses morning trend to hit another high

Gold rallied to record highs above $1,329 an ounce in Europe on Tuesday as the dollar fell versus the euro, with recent volatility in the currency markets boosting demand for the metal as a safe store of value. An announcement by the Bank of Japan that it would create a pool of funds to buy assets to tackle strength in the yen also helped gold. Moves by major economies to curb strength in their economies are giving a major lift to the metal. Brazil on Monday doubled a tax on foreign investors buying local bonds in an attempt to curb a currency rally that has turned into an issue in the country's presidential race.

Yen

The Bank of Japan pledged to expand its balance sheet by 5 trillion yen ($60 billion), aiming to shore up the nation’s slowing economic recovery. The central bank will create a 5 trillion yen fund to buy government bonds and other assets, it said in a statement released today in Tokyo. It also lowered the benchmark interest rate to a range of zero percent to 0.1 percent from the previous 0.1 percent target. The central bank kept its credit program for banks at 30 trillion yen, and its target for monthly purchases of government bonds at 1.8 trillion yen. In the past few sessions, the currency has been supported around 83.15 yen, as some market players expect Japanese authorities to intervene around that level. Japan sold the yen for first time in six years in the market on Sept. 15 when the dollar hit a 15-year low of 82.87 yen.

Sterling

Sterling rose against the euro on Monday as concerns about the health of peripheral euro zone countries weighed on the single currency, prompting investors to trim long euro positions. Better-than-expected construction sector activity data also helped sterling, but analysts said the possibility of additional monetary easing measures to support the UK economy left the pound vulnerable to further falls. Investors remained nervous ahead of Thursday's Bank of England policy decision after policymaker Adam Posen last week advocated a further bout of quantitative easing, although few expect any change as early as this month.

Euro

The euro jumped against the dollar on Tuesday on reported Asian buying, pushing the greenback to an 8-1/2 month trade-weighted low, while the yen trimmed earlier falls against the U.S. currency. The euro's sharp gains pushed the dollar index as low as 77.975 it’s weakest since late January, while the dollar hit a 2-1/2 year low versus the Swiss franc. Talk of the United States adopting more QE grew after Chairman Ben Bernanke said on Monday more Fed asset purchases could further ease financial conditions. The fact the European Central Bank has not hinted at policy easing measures was seen as positive for the euro, which shrugged off a Moody's warning it may cut Ireland's debt ratings.

Rupee

The Indian rupee snapped a 3-day rally and weakened on Tuesday as the dollar rose against majors on short-covering globally. However, robust capital inflows are expected to limit the rupee's downside. The main stock index SENSEX was choppy after rallying almost 14 percent over the past five weeks to 33-month highs. Foreigners have bought a record $19.7 billion of Indian equities this year, with about one-third of that happening since the start of September.

Source: Richcomm Global Services DMCC, Dubai