Brokers' notes: Gold closes on to a seven week high; oil extends early gains

Gold
Gold fluctuated near a seven-week high as a stronger dollar offset investment demand for bullion as a protection of wealth amid concern the economic recovery may falter. Holdings in the SPDR Gold Trust rose again, showing that investors remained faithful to the metal in light concerns about the global economy and volatile equity markets. A pick up in physical demand in main consumer India during the festive season is seen supporting prices, but gold remains vulnerable if investors have to sell positions to cover any sharp fall in equity markets caused by continued scepticism about the global economic recovery.

Retail sales and UK sterling
Retail sales volumes in UK rose nearly three times faster than expected in July, and a 38 percent annual surge in corporation tax receipts pushed public borrowing down sharply, official data showed on Thursday. The upbeat economic figures suggest Britain's recovery remains strong after unusually high second-quarter growth, but economists maintain that a slowdown is likely by early next year when sales tax rises and spending cuts are set to bite. Sterling jumped by a full cent against the dollar and half a cent versus the euro, as it allayed some concern that British consumer and business sentiment had been faltering in the face of upcoming government spending cuts.

Euro
The euro came under selling pressure on Thursday, as the single currency got hit by the latest worries about Greece. German magazine Der Spiegel helped to crystallize market concerns about the Greek austerity package with an article warning that the measures are dragging the economy down, with unemployment rising to 70% in some parts of the country. This came at a time when the market was already worried about the continual high cost of insuring Greek debt through credit default swaps, suggesting that investor confidence in the country's recovery from its sovereign debt problem is still at low levels. Sentiment towards the euro was only made worse by a resurrection of talk that Moody's could lower France's triple-A credit rating, news of which prompted French President Nicolas Sarkozy to recall several ministers from holiday this week.

Yen
The yen faced a barrage of speculation that the Bank of Japan is on the brink of introducing further monetary easing through liquidity injections, similar to that introduced last December. The central bank is under increasing pressure to weaken the yen as more corporations, including Mitsubishi Chemicals, call for action. The country's Industry Minister Masayuki Naoshima warned that the current dollar level of Y85 is "very painful" for Japanese companies. Although there has been speculation that the Bank of Japan will actually intervene in the market to drive the yen lower, the authorities are expected to explore other policy options before resorting to an exercise that would leave Japan exposed to the accusation of currency manipulation.

Oil
Oil extended today’s gains after the Bundesbank raised its growth forecast for Germany this year, triggering a rebound in European stock indexes. Crude futures in New York fell to the lowest in more than a month yesterday after a U.S. Energy Department report showed that total petroleum stockpiles surged to the highest level in at least 20 years. Crude oil for September delivery gained as much as 68 cents, or 0.9 percent, to $76.10 a barrel on the New York Mercantile Exchange, and was at $76.05 a barrel at 2:27 p.m. Dubai time. Gross domestic product will increase by about 3 percent in 2010, the German central bank said in its monthly bulletin.

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