Brokers' notes: Gold unchanged in early trading; euro dipping against the dollar

Gold
Gold traded almost unchanged in the early deals of Wednesday, with sentiment underpinned by a rise in ETF holdings and persistent worries about the health of the global economy. Fears about a double-dip recession after a flurry of weak economic data and the Fed's downward reassessment of its US outlook lifted gold's appeal as an alternative investment. In the latest economic data, producer prices increased in July for the first time in four months, helping to allay concerns about deflation, but housing starts rose at a weaker rate than expected and permits fell to their lowest point in more than a year. The world's largest gold-backed exchange-traded fund, SPDR Gold Trust said its holdings rose to 1,294.604 tonnes by August 17 from 1,286.699 tonnes on August 12. The holdings hit a record at 1,320.436 tonnes on June 29.

Oil
Oil prices fell on Wednesday after an industry report signalled petroleum inventories in top consumer the United States were headed for a record, following an unexpected sharp increase in crude stocks last week. Prices are now centred near the mid-point of this year's $64.24-$87.15 trading range, as recovering energy demand has been insufficient to drain ample supplies, leading to an unseasonal raft of seven consecutive weeks of gains in US gasoline stockpiles and eleven in distillate inventories, including diesel.
The American Petroleum Institute late on Tuesday said US crude stockpiles rose by almost 5.9 million barrels last week, compared with market expectations for a 1-million-barrel drop. If the API data is confirmed on Wednesday by weekly government statistics on inventories and demand from the US Energy Information Administration, it would send the country's combined crude and product inventories to a record high. An unusual premium of front-month Brent over US benchmark West Texas Intermediate (WTI) crude reached its widest level in two months on Tuesday on speculation that a glut at the Cushing, Oklahoma pricing point for WTI was expanding. It remained steady at slightly more than $1 a barrel on Wednesday. Crude supplies at Cushing stood at 37.7 million barrels in the week through August 6, just shy of a record 37.9 million barrels in mid-May, according to the EIA.

Yen and dollar
The yen dipped against the dollar after US shares rose and US Treasury yields edged higher the previous day. The Japanese currency, however, was still not far from a 15-year high of 84.72 yen to the dollar hit last week. Investors are watching whether the Bank of Japan or the government will take new steps to rein in the yen's export- sapping rise ahead of a meeting between Prime Minister Naoto Kan and Bank of Japan Governor Masaaki Shirakawa expected next Monday. Japanese authorities seem unlikely to resort to yen-selling intervention unless the yen's rise gains more steam.

Euro and dollar
The euro dipped against the dollar on Wednesday but its losses were limited after solid demand at Irish and Spanish bond auctions the previous day eased some jitters about heavily indebted euro zone countries. But Moody's Investors Service told Reuters in an interview on Tuesday that it still had enough doubts about the outlook for Spain's public finances to keep the sovereign's triple A rating under review. The euro could come under pressure again if the market's focus turns toward sovereign risks in the euro zone.

UK Sterling and dollar
Sterling (GBP) lost value against the US dollar and euro following an inflation report that showed a decline in price pressures. UK consumer prices fell 0.2 percent in July, which pushed the annualized pace of CPI growth down to 3.1 from 3.2 percent. Although this is the eighth consecutive month that CPI has been above the central bank’s 3 percent threshold that necessitates a special report to the Chancellor, it supports their belief that above target inflation is temporary. In the letter to the Chancellor, Bank of England Governor King wrote that he is “surprised” by the recent strength of inflation and attributed it to “the increase in VAT [Value Added Tax] in January 2010, high fuel prices and the recent depreciation of the sterling,” which he believes will “have a temporary impact on inflation.” In the near term, annualized inflation is expected to remain above 3 per cent for the rest of this year and possibly into 2011 as well. Today’s Monetary Policy Committee’s minutes will ratify the stance of the BOE with greater clarity.

Source: Richcomm Global, Dubai, www.richcommglobal.com