Brokers' notes: Gold moves up slightly

Gold

Gold rebounded slightly on Monday from a fall of one percent in the previous session, shrugging off China's tightening move on Friday, as physical buying continued to buoy prices.

China's central bank raised lenders' required reserves on Friday for the fourth time in just over two months, stepping up the fight against inflation that it has vowed will be a top priority for the year. 

Eyes are on a suite of data from Beijing due on Thursday, including December inflation and fourth-quarter economic growth, which might give clues on how much tightening would be needed in the next few months. But economic conditions in the US and Europe will be a more decisive factor behind gold prices.

Euro

The euro hovered below a one-month high on Monday, with market players saying clearer signs of progress on the euro zone's safety net for sovereign debt are necessary for the currency to make significant gains.

Traders suspect a large portion of the bets against the euro were cleared in a big bout of short-covering last week, suggesting limited gains in the near-term. 

Europe responded to the debt crisis that has forced Greece and Ireland to take bailouts with a safety net fund that can borrow on the market with euro zone government guarantees of up to 440 billion euros, but analysts say a new package of anti-crisis measures is both essential and urgent.

Attention is focused on the euro zone's finance ministers' meeting on Monday, where an increase in the effective lending capacity of the rescue fund is expected to be dominating discussion.  

European Central Bank chief Jean-Claude Trichet, speaking on a French talk show on the eve of the regular meeting of euro zone finance ministers, said the European safety fund should be beefed up.

Sterling

Sterling hit a one-month high against the US dollar on Friday on expectations UK interest rates could rise in coming months due to sticky inflation, a view bolstered by higher-than-expected producer prices.

The pound also gained ground against the euro despite brewing speculation that the European Central Bank may need to raise rates sooner than previously expected.

Traders said the Bank of England was still likely to move before the ECB in tightening policy and that helped sterling outperform. Escalating rate rise expectations and steady purchases by Asian central banks have pushed the pound nearly 2 per cent higher versus the dollar last week.

Data on Friday showed wholesale price risks are increasing due to rising oil and food prices. UK output prices rose 4.2 per cent on the year in December, the fastest rise since August and exceeding expectations for a 3.9 percent increase.

UK interest rates have been locked at a record low 0.5 per cent for nearly two years, while euro zone rates are at 1.0 per cent.

Indian rupee

The Indian rupee hit its lowest level in a month on Monday tracking weak regional peers and a choppy domestic share market, which raised concerns foreign funds would continue to repatriate funds.

The rupee is continuing with its downward trend as there is no positive news coming. Near-term is bearish and nothing much is expected in the medium term; it is likely to be ranged.

The main stock index was trading down 0.1 per cent after having risen over 0.4 per cent earlier, with shares in Anil Ambani group companies falling after two group firms agreed with the market regulator to investment curbs.

Foreign institutional investors are net sellers of $545 million worth of shares this year until Thursday, pushing the rupee down 1.7 per cent in 2011. In 2010, record inflows of $29.3 billion had helped the rupee gain 4.1 per cent.

Oil

Crude futures hovered above $91 a barrel on Monday after a slight rise late last week on the back of strength in US equities. US commodities markets are closed on Monday for the Martin Luther King holiday.

Because of the holiday, the NYMEX will not print an official settlement price until Tuesday. No OPEC countries have requested an emergency meeting to discuss the rising price of crude, Iran's oil minister said on Sunday, calling $100 per barrel a "real" price and not a matter of concern for producers.

OPEC is ready to act to address supply shortages in the oil market but not to counter price moves caused by speculation, Secretary General Abdullah Al Badri told an Austrian newspaper.

UAE Oil Minister Mohammed Al Hamli said on Friday that oil markets were well supplied and expects to see positive growth in demand going forward. 
 
Source: Richcomm Global Services, DMCC, Dubai; www.richcommglobal.com