Brokers' notes: Gold price inches up

Gold

Gold inched up on Tuesday on persistent worries about indebted euro zone countries, while purchases from investors and jewellers pushed up premiums for gold bars to their highest in two years.

The bullion's drop to its lowest in more than a month last week  also helped lift premiums for gold bars, with demand picking up ahead of the Lunar New Year celebration in February.

Gold bars were offered at a premium of $3 (Dh11) to the spot London prices in Hong Kong, matching a similar level seen in late 2008. Investors will also closely watch the developments in Portugal, which is widely seen as the country next in line in the euro zone to need a bailout after Greece and Ireland.

The world's largest gold-backed exchange-traded fund, SPDR Gold Trust said its holdings rose to 1,272.682 tonnes by Jan. 10 from 1,271.164 tonnes on January 7.

Euro

The euro on Tuesday hovered above a four-month trough hit the previous day, after Japan said it may buy about a fifth of the bonds the European Financial Stability Facility plans to sell later this month to fund its bailout scheme.

However, Finance Minister Yoshihiko Noda suggested Japan would use its euro cash holdings to buy the bonds, dampening some of the initial excitement from traders who had thought the move may involve fresh buying of the European currency.

Japan does not disclose the currency breakdown of its $1 trillion reserves but analysts think only a very small portion is in the euro and the impact of the news may not last long. The euro could easily return to its current downtrend given

mounting worries over this week's heavy schedule of debt offers by southern European countries. The euro stayed below its 200-day moving average at $1.3071 and remained within easy reach of Fibonacci support at $1.2794, the 61.8 percent retracement of a June to November rally.

The focus this week is on whether Lisbon will be able to raise funds in the debt market on Wednesday or be forced to turn to the EU and IMF for financial aid. 

Indian rupee

The Indian rupee retreated from a three-week low on Tuesday, tracking early gains in local shares and some uptick in the euro, but broad gains in the dollar versus majors limited a further sharp rise. 

Indian shares climbed 1.1 percent in early trade after five straight days of fall, but briefly turned negative on shaky sentiment amid fears of an imminent rate hike.

India's central bank is widely expected to raise rates by 25 basis points at its policy review on January 25 and is seen raising rates by a total of 75 basis points in 2011. Foreign funds sold shares worth $212.6 million on Friday, taking net outflows so far this year to $10.7 million. The rupee had gained 4.1 per cent in 2010 on record $29.3 billion inflows.

Oil

Oil was steady above $89 on Tuesday, paring early gains on expectations that the Trans Alaska Pipeline would resume flows equivalent to 12 percent of U.S. crude output within a few days. 

The pipeline is planned to reopen later this week,  after halting shipments on Saturday  because of a leak that forced producers in Alaska's Prudhoe  Bay region to cut output by about 600,000 barrels to just 5  per cent of normal levels.

According to a preliminary Reuters poll before the release of weekly inventory reports, US crude oil inventories probably rose by 400,000 barrels last week as imports rebounded, in what would be the first gain in six weeks,  In the previous five weeks, crude inventories had tumbled  more than 24 million barrels, the biggest five-week drop since  June 2008, as refiners, in their usual year-end practice, used  more of their stored supplies and tried to hold down imports  to lower their taxes for 2010.

Distillate stocks, which include heating oil and diesel, may have increased 1.3 million barrels for their third straight weekly gain, while gasoline stocks probably rose 2.8 million barrels, the survey showed. 

Sterling

Sterling hit its highest level against the euro in nearly four months on Monday as the single currency was stung by increasing concerns about sovereign debt problems in the euro zone. 

However, despite slight gains against the euro, the pound slipped against the dollar after mortgage lender Halifax said UK house prices fell 1.6 percent year-on-year in the three months to December, its biggest fall since November 2009.

At the same time, some argued sterling would be supported on speculation that increasing UK inflation pressures may require the Bank of England to soon consider raising interest rates, despite the sluggish pace of the economic recovery.

UK Prime Minister David Cameron weighed in on the inflation debate, saying on Sunday that he was concerned about a rise in prices. The BoE is widely expected to keep rates unchanged at a record low 0.5 per cent when it holds a monetary policy meeting later this week. RBS expects the UK central bank will raise rates in November.

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