Brokers' notes: Gold edges higher after last week's loss

Gold

Gold edged higher on Monday, after losing 3.5 per cent in the first week of 2011, as fears over the euro zone debt crisis buoyed appetite for bullion, and bargain hunting in the physical market provided support.

Last Friday's US non-farm payrolls data turned out not as strong as expected and a surprisingly large number of people gave up searching for work, tempering the positive news of a big drop in the unemployment rate.
 
Active demand on the physical market continued to buoy sentiment. Holdings in the world's largest gold-backed exchange-traded fund, SPDR Gold Trust continued to slide, falling about 1.5 tonnes to a seven-month low of 1,271.164 tonnes by January 7.

Euro

The euro touched four-month lows against the US dollar on Monday after stops were triggered in thin trade against the backdrop of mounting worries about Europe's debt crisis.

Although the euro later pared its losses on short-covering, market players said the single European currency still looked vulnerable, due to worries about the level of demand at euro zone debt auctions coming up this week. 

The single currency fell to lows not seen since mid-September, slipping as deep as $1.2860 after stops around $1.2900 and $1.2870 were triggered. 
The common currency had already been under pressure last week, falling from a peak of $1.3435 on January 4, as investors  sold peripheral euro zone bonds ahead of new debt supply from  the likes of Portugal and Spain this week.  

Portugal - seen by many as the next country after Greece and Ireland to need bailing out - will draw the most intense scrutiny when it attempts to sell up to 1.25 billion euros of five and 10-year debt on Wednesday.

Oil

Oil surged towards $90 on Monday after a leak shut an Alaskan pipeline that carries 12 percent of US crude output. The Trans Alaska Pipeline was shut down on Saturday with no indication of when it would reopen after a leak discovered at Prudhoe Bay, forcing oil companies to cut output to 5 percent of their daily average of 630,000 barrels. 

A fire halted production at Canadian Natural Resources' main oil sands project in northern Alberta. The firm could not say on Friday when its 110,000 barrel a day Horizon facility would resume normal operations, but said it expects to have a repair schedule readied next week.

Money managers sharply cut their net long crude futures positions in the week through January 4 from a record level in the previous week, the Commodity Futures Trading Commission said.

Indian rupee

The Indian rupee held its ground on Monday, supported by firm Asian peers and a sharp drop in the country's trade deficit in December. However, demand for dollars from oil refiners, the biggest buyers in the market, kept the rupee in a tight range.

India's trade deficit in December narrowed to $2.6 billion from $8.9 billion in November, the lowest in the last three years. The rupee should move in a 45.20-45.50 range, with exporters expected to cash in at 45.40-45.50.

Indian shares extended losses to more than 1 per cent in early trade, after sliding 4 per cent last week, on heightened concerns about an interest rate increase after food inflation shot up to the highest in more than a year.

The central bank is scheduled to review monetary policy on Jan. 25. Foreign funds have bought shares worth $201.88 million in the first four trading sessions this year, but the outlook is uncertain.

The rupee had gained 4.1 percent in 2010 on record $29.3 billion foreign equity inflows. One-month offshore non-deliverable forward contracts were quoted at 45.68, weaker than the onshore spot rate.

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