Broker's Notes: US gold futures climbs

Gold

US gold futures jumped more than 1 percent on Thursday as the dollar slipped with investors worried the US Federal Reserve's new bond-buying programme would do more harm than good. Looking ahead, investors awaited the release US payrolls data on Friday to see if the economy was creating jobs. The report is expected to show a rise in overall nonfarm payrolls of 60,000 in October.

US dollar and Fed’s policy

The Fed on Wednesday launched a fresh effort to support the US economy, committing to buy $600 billion in government bonds, but critics fear the policy will lead to high inflation and worry that low interest rates risk fuelling asset bubbles in other. The Fed's commitment to open-ended purchases of Treasuries, implying low funding costs for a while, also plays into carry trades, in which the dollar is used to fund purchases into commodities, emerging markets and higher-yielding currencies. As a result, the dollar remained close to a 28-year low hit against the higher-yielding Australian dollar. The dollar index a gauge of its performance against a basket of currencies, eased 0.1 percent to 76.31, just above its 2010 low set in October at 76.144 and trend line support at 76.10.

Indian rupee

The Indian rupee rose on Thursday tracking a rise in domestic shares and a weak dollar but some foreign banks bought dollars, probably for refunds towards the oversubscription of Coal India's initial share sale. Shares in state-run Coal India surged 30 percent in their trading debut on Thursday after the Indian government raised $3.4 billion in the country's largest-ever initial public offering. Foreign funds who did not get an allotment of the shares were repatriating funds and thus pulled the rupee off its highs. The rupee is moving in a narrow band so far. Sentiment is mixed, there is some custodial selling and some good amount of buying by foreign banks.

Yen

The Bank of Japan begins a two-day rate review on Thursday, a day after the Federal Reserve's decision to buy $600 billion more in government bonds to boost the US economy. The Japanese central bank brought forward its meeting from mid-November to speed up the launch of its 5 trillion yen ($62 billion) asset buying scheme.  It is expected to hold off on easing monetary policy further unless the Fed's quantitative easing pushes the dollar well beneath its record low against the yen. Japan’s Prime minister was quoted as saying that “We had hoped Japan's economy would achieve self-sustained growth backed by consumption and investment. But unfortunately the recovery has not gone that far and downside risks for the economy are increasing."

Oil

Crude oil futures rose for the third straight day on Wednesday, ending at a six-month high, as the Federal Reserve announced a fresh monetary stimulus aimed at bolstering the pace of economic recovery. The Fed announcement caused the dollar to fall against the euro, helping crude futures hold on to gains in choppy late-session trading.  Prices were already up sharply before the announcement, helped by larger-than-expected draw-downs in distillate and gasoline inventories last week. Data showing expansion in the services sector, factory orders and private payrolls also aided in lifting oil prices. The results of the mid-term elections, in which Republicans regained control of the US House of Representatives and gained more seats in the Senate, also helped boost sentiment.

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