Brokers' notes: Gold returns to positive territory

Gold

Gold regained some ground and platinum group metals returned to positive territory, as bargain hunting lent support, after prices lost about one percent in early trade in response to China's interest rate increase on Saturday. 

China's central bank raised interest rates on Saturday for the second time in just over two months as it stepped up its battle to rein in stubbornly high inflation.

Gold is technically neutral as it is range-bound between $1,360 and $1,392 per ounce, but the bias seems to be with the bulls. Silver fell as much as 1.6 per cent to a one-week low of $28.75 an ounce, and recovered to $29.04 an ounce. 

Australian dollar

The Australian dollar dropped on Monday after China's central bank raised rates at the weekend and some analysts say expectations of more tightening by China could prompt investors to sell the Aussie after the year-end holidays.

While the market had been expecting more policy tightening from Beijing, the timing was a bit of surprise, as there had been doubts over whether the central bank would raise rates before the end of the year.

The news knocked the Australian dollar 0.4 per cent in erratic, thin trade on Monday, with many centres in the region, including Sydney and Hong Kong, on holiday.

While Australia's relatively sound fiscal position, its strong growth and higher yields are likely to lure investors, the Aussie may come under pressure particularly against other commodity currencies, such as the Canadian dollar

Euro

The euro fell 0.2 per cent to $1.3093 after traders successfully gunned for stop-loss orders around $1.31. While the euro looks vulnerable due to worries over some euro zone countries' debt financing problems, a lack of market players this week may help the currency to hold above last week's three-week low of of $1.3055. 

The dollar was little changed against the Japanese yen at 82.93 yen Although stuck in its familiar range between 82.50 and 84.50 yen, the dollar has been ticking down in the past couple of weeks as holders of long positions have given up hope of pushing it beyond 85 yen. Support is seen around 82.40. 

Oil

Oil rallied to a new two-year highs on Monday despite the uncertainty of Chinese fuel demand growth following a Christmas Day interest rate hike offset a blizzard in the US Northeast.

Crude for February nudged 39 cents lower to $91.80 a barrel after hitting a 26-month high of $91.63 the previous session. When China last raised interest rates in mid-October, oil tumbled 4 per cent.

Prices quickly recovered and have since rallied by around 15 percent on abnormally cold weather in the northern hemisphere and an unexpected surge in fuel demand. 

Oil prices also came under pressure from the restarting of  a major US gasoline refinery. The gasoline-making fluid catalytic cracker at Hovensa  LLC's 500,000-bpd Virgin Islands refinery resumed operations on Friday after an over two-week unplanned outage.

The unplanned outage contributed to extended tightness in  the New York harbour gasoline market that had helped drive oil  prices higher. 

Indian rupee

The Indian rupee edged up in early trade on Monday, boosted by firm regional peers and mild gains in domestic shares but month-end dollar demand from oil refiners and other importers limited any sharp gains in the local unit.

Most Asian currencies were trading stronger on the dollar. There was some dollar demand from importers and oil refiners which was limiting the rupee's gains.

Oil is India's biggest import, and refiners are the largest buyers of dollars in the domestic currency market, with their demand tending to peak at the end of each month, when they are required to make payments.

One-month offshore non-deliverable forward contracts were quoted at 45.28, weaker than the onshore spot rate.

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