Brokers' notes: Gold rise to multi-week highs; euro advances

Gold
Gold rose to multi-week highs in dollar, euro and sterling terms in Europe on Wednesday as equity markets fell on concerns over the outlook for global growth, lifting the precious metal's appeal as a safe store of value. Confirmation of continuing safe haven demand for gold was given by the World Gold Council (WGC) who reported that gold demand rose 36 per cent in the second quarter as investors increased allocations to gold through bullion and ETF purchases during the sovereign debt crisis. Global demand rose to 1,050.3 metric tonnes from 769.6 tonnes a year earlier with investors purchasing 291.3 metric tonnes of gold in exchange-traded funds, or ETFs, the second-highest quarter on record, and central banks were net buyers for a fifth straight period.
While imports of gold into India fell 5.6 per cent in the second quarter (versus the second quarter of 2009), gold demand in the world's biggest gold importer almost doubled to 365 metric tonnes in the first half from a year earlier. Gold has been attempting to consolidate around the broad range of $1,175 (Dh4,315) to $1,250 levels and it looks like the metal may meander in the same zone for the rest of the year. Most of the recent gains in hold have been on the back of current economic uncertainty across the globe, predominately the US. Under such economic uncertainty investors flee to the perceived safety of the metal. Physical demand for gold especially in the UAE has been slogging for almost a year and the reasons are obvious high prices and the global economic situation since the third quarter of 2008. The WGC report there was a 10 per cent rise in demand in value terms. The increase in value is on the back of rising gold prices and but the per capita off-take has been pretty low. We increasingly see many moving to diamonds and18K gold due to this price spike. In the coming months there are a host of festivals lined up in the Middle East and in India. (Ramadan, Diwali etc). This should support gold from any major slide.

Euro
The euro advanced on Wednesday, recovering from a record low against the Swiss franc and a nine-year trough against the yen, after a widely watched survey of German business sentiment registered a surprise rise. The Ifo business climate index unexpectedly rose to 106.7 in August from 106.2 in July, beating forecasts for a drop to 105.7.The news helped lift the euro, which came under pressure earlier in the session as rising risk aversion and a sovereign rating downgrade for Ireland from Standard & Poor’s hit demand for the single currency.

Sterling
UK sterling pulled away from a one-month low against the dollar on Wednesday, helped by a bout of short covering after German data beat forecasts, although lingering worries about a US slowdown could cap gains. By 0831 GMT, sterling was up 0.16 per cent at $1.5430, moving away from Tuesday's low of $1.5373, its weakest level since late July. Despite the gains, the pound was nearly one per cent below this week's high of $1.5620. Earlier, the pound was nursing losses as investors sold the currency and moved towards safe-haven currencies like the dollar and Swiss franc. Expectations that a deteriorating external climate will prompt the Bank of England to maintain a dovish monetary stance also weighed on the pound.

Yen
On Wednesday morning, Japanese authorities reinforced the tone of their ‘verbal’ interventions. Finance Minister Yoshihiko Noda not only said that the recent yen moves were one-sided, but also warned that Japan will take appropriate action when necessary. There are also several press reports/rumours on Japanese authorities preparing for intervention in case of more yen strength. So, despite ongoing losses on the Asian stock market, the rise of the yen slowed on Wednesday morning. USD/JPY regained the 84.00 mark.

Oil
Crude oil prices were rising during the electronic trading session of Dubai Gold Commodities Exchange (DGCX), rising back above $72 a barrel. On Tuesday, crude extended losses and prices approached $70 a barrel before settling at $71.63, with the late rally staged by traders perceiving the five-day slump may be excessive. The rally comes ahead of the latest weekly demand report from the Energy Information administration which were due to be published later on Wednesday. Markets will scrutinise the data for evidence of demand conditions across all product sectors, including crude, heating oil and gasoline. The latter of these has been particularly weak during the US summer driving season, driving crude prices lower.

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