Brokers' Notes: Gold steady with an eye on US stimulus

Dubai: Spot gold held steady on Monday as healthy physical demand helped buoy prices, while China's move to further tighten its monetary policy and upbeat US economic data weighed on sentiment. China raised banks' reserve requirement ratio on Friday, as the country's inflation soared to a 28-month high in November and put pressure on the government to step up efforts to curb inflation. Robust physical demand in the region helped support prices. India and China have both shown strong appetite, due to seasonal rise in demand, he added. Investors are eyeing a Federal Reserve meeting on Tuesday to see whether the proposed $600 billion stimulus plan would be carried out, or if further stimulus would be considered to jump-start the economy.

Euro
The euro slipped on Monday, looking set to remain in its downtrend for now, while the dollar held steady, supported by higher Treasury yields after improving US data late last week. The euro has been under steady pressure in recent weeks on concerns over debt levels in peripheral euro zone states, and many in the market expect that pressure to remain with some looking for a re-test of this month's low at $1.2969. There was talk of a mixture of automatic stop-loss sell orders and take-profit orders on the euro in the $1.3165-80 area, just below the day's low of $1.3182 and then euro bids at $1.3150 and more sell stops below that. Currency speculators trimmed short positions against the dollar last week but more than doubled their bets against the euro, according to data from the Commodity Futures Trading Commission, signalling growing bearishness on the currency.

US dollar
The dollar has been supported by a rise in Treasury yields following a proposal in the United States to extend Bush-era tax cuts, which is seen as helping the economy, and economic indicators have been improving, if unevenly. Consumer sentiment data on Friday showed confidence at its highest in six months. The data fits into a pattern of an economy that is gaining traction after a slowdown and is likely to intensify the debate over whether the Federal Reserve needs to keep stimulating the economy through asset purchases. The Fed meets on Tuesday and officials are expected to assess its second round of quantitative easing announced in November, the prospect of which dragged the dollar lower in September and October. But they are not expected to signal any shift away from their intention to buy $600 billion in government debt, despite Washington's proposal to extend tax cuts.

Indian rupee
The Indian rupee weakened on Monday tracking the euro's losses versus the dollar while a choppy local stock market failed to provide any clear cues on the direction of foreign fund flows. Indian shares erased early gains and briefly turned negative as investor sentiment was shaky on a deepening probe into alleged corruption in telecoms licences distribution. Foreign funds had dumped a net $728.74 million worth of shares in four sessions until last Thursday. However, total foreign fund inflows so far in 2010 still stand at $28.7 billion, on top of the $17.5 billion purchased last year. Traders said better-than-expected industrial output data on Friday had renewed hopes for sustained foreign fund investments into Asia's third-largest economy. India's annual industrial output in October grew at its fastest clip in three months, powered by demand for consumer durable goods such as cars, though the data is unlikely to prompt the central bank to raise interest rates next week.

Crude
Oil prices were higher on Monday after the Organization of the Petroleum Exporting Countries greed at the weekend to keep crude oil output levels flat. Several reports, including one from the International Energy Agency raising its 2011 oil demand growth forecast, indicated that fundamentals are strong. The International Energy Agency lifted its 2011 oil demand growth forecast by 130,000 bpd to 1.32 million bpd from its previous monthly report. On Friday, U.S. data showed consumer sentiment rose more than expected in early December to the highest level in six months, according to the Thomson Reuters/University of Michigan survey, while the government said the country's trade deficit shrank much more than expected in October. Severe winter weather in the United States and Europe is also seen boosting energy demand. Europe is expected to have colder than normal temperatures with energy demand above normal.

Source: Richcomm Global Services DMCC, Dubai
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