Brokers' notes: Gold climbs as European downgrades fear rise

Gold

Gold firmed on Tuesday as fears of further ratings downgrades in Europe spurred buying from speculators, but demand from jewellers slowed to a trickle in Asia, with most orders already filled before the year-end holidays. The euro was on the defensive on simmering fears that some euro zone countries and banks could face more borrowing strains after Moody's said it may cut the ratings on Spanish banks. Speculation has also risen that France and Belgium may face cuts. Greater inflows into bullion-backed, exchange-traded funds and increased open interest in U.S. futures have helped fuel gold's price rise this month.

Euro

The euro bounced back from a 2-½ week low on short-covering on Tuesday, though simmering fears that some euro zone countries and banks could face more borrowing strain are likely to limit gains. Comments from a Chinese vice premier that China supports efforts by the EU to calm global markets in the wake of Europe's debt crisis were enough to trigger a short-covering rally in holiday-thin trade. The euro rose 0.3 percent on the day to $1.3176 extending its rebound from Monday's trough of $1.3094, its lowest level since Dec. 2. For now though, the market may look to Spain's treasury bills auction later in the day -- the last debt auction this year from a struggling member of the euro zone. Spain needs to repay about 15 billion euro in April.  The auction came after Moody's said on Monday it may cut the ratings on Spanish banks following its multi-notch downgrade of Ireland's credit rating last week. Speculation has risen that France and Belgium may also face cuts.

Australian dollar

The Australian currency rose 0.2 percent against the dollar to $0.9957 returning to an uptrend after hitting a low of $0.9830 late last week. A possible near-term target is $0.9980, a 76.4 per cent retracement of its pullback last week from above parity. The Aussie moved little after the minutes from the Reserve Bank of Australia's policy meeting confirmed the central bank is in no hurry to raise rates.

US Dollar

The US dollar slipped a tad against the Japanese yen, tracking the dollar's fall against the euro, though many traders see little incentives in either direction in the pair, which has been stuck in a narrow trading range in the past month. The dollar fell 0.1 per cent to 83.66 yen but strong support is seen at around 82.80 yen, its low last week. The Bank of Japan kept monetary policy steady as widely expected on Tuesday, holding off on easing as it scrutinises how escalating debt woes in Europe and a US-driven rise in bond yields affect Japan's fragile economy.

Oil

Oil prices rose for the third straight session on Tuesday, supported by cold weather in the United States and Europe, seasonal gasoline demand, and an expected drop in US crude stocks. Crude for February climbed 33 cents to $89.70 a barrel. Trading volume was expected to remain thin this week with strong resistance seen at $90 a barrel and support at $88. 

Heating oil and gas oil futures also gained as frigid weather in the United States and Europe fuelled demand. Heating oil demand in the world's largest oil user was expected to be 4.6 percent above normal this week, according to the US National Weather Service. Weekly oil inventory reports were expected to show crude oil and distillate stocks fell last week, though gasoline stockpiles were estimated to have risen, according to a Reuters survey.

Indian rupee

The Indian rupee rose on Tuesday as the euro bounced back from a low of more than two weeks, with gains in other Asian currencies as well as domestic shares supporting the local unit. Most Asian currencies were stronger than the US dollar on Tuesday. Indian shares rose on Tuesday, with banks leading the rise, taking cues from strong Asian markets. One-month offshore non-deliverable forward contracts were quoted at 45.48, weaker than the onshore spot rate.

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