Brokers' notes: Gold surges higher, oil rebounds

Dubai: Gold surged higher, leading investors to count on the perceived safety of metal, after a report showed US existing home sales were much weaker than were expected last month.

The National Association of Realtors reported that US home re-sales dropped a record 27.2 per cent, which is nearly twice as much as markets had expected, to an annual rate of 3.83 million in July.

Meanwhile, inventories rose to 12.5 months, from 8.9 months in June, putting pressure on already depressed home prices. Inventories are at their highest level in more than a decade.

The data was so bad it sparked talk that the Federal Reserve could embark on a fresh round of quantitative easing, which appears to tarnish the US dollar's claim to be a safe haven.

If this economic uncertainty continues to persist and is further acknowledged by the data on new-residential sales on Wednesday, as well as a second-quarter US gross domestic product revision on Friday, gold may gain further.

Euro/dollar

The euro moved higher against the dollar on Tuesday and managed to hold above the 1.2600 support level, as the dollar weakened after the housing data. However, as Eurozone fiscal challenges re-surfaced, it succumbed to quick profit taking.

Standard and Poor's has downgraded Ireland to AA and warned the outlook is still negative, fanning worries about euro zone sovereign debt and the banking system. Today, the focus will be on the German IFO survey. If data prints better than the expected 105.7, investors may see the euro recover more of last week's losses against the US dollar.

Yen/dollar

The yen retreated from a 15-year high versus the dollar, on speculation Japanese authorities will act to stem gains that risk derailing the nation's recovery. The clue to this came after Japanese Finance Minister Yoshihiko Noda pledged "appropriate action" on the currency. Newspapers said the Bank of Japan is considering further monetary easing.

A Bank of Japan programme, that provides funding to lenders at 0.1 per cent, may be expanded to 30 trillion yen (Dh1, 307.53 billion) from 20 trillion yen, and the duration of the loans may be increased to six months, from three.

Japan hasn't intervened in the currency markets since March 16, 2004, when the yen was at about 109 per dollar. The Bank of Japan sold 14.8 trillion yen in the first three months of 2004, after record sales of 20.4 trillion yen in 2003. The currency ended in 2004 at 102.63 to the dollar. Japan last bought the currency in 1998, purchasing 3.05 trillion yen as the exchange rate weakened to 147.66.

Oil

Oil rebounded as the US currency gave up yesterday's gains, bolstering speculative demand for commodities as a hedge against inflation. Oil has lost 5.5 per cent in the previous five days amid concern the global economic recovery would stall and curb fuel demand.

The American Petroleum Institute industry group said yesterday that commercially held crude stockpiles in the US, the world's biggest oil-consuming nation, decreased for the third time in four weeks, last week. The US Energy Department will release its inventory report today and a survey shows that crude supplies could have increased 300,000 barrels after three weeks of declines.

Indian rupee

The Indian Rupee and stocks fell for a second day after the central bank said inflation has "emerged as a major concern," fuelling speculation it will raise interest rates for the fifth time since mid-March.

Foreign fund inflows to India's equities market have climbed 69 per cent this year, making the Sensex the most expensive benchmark index in Asia and among the BRIC markets that also comprise Brazil, Russia and China.

The Sensex is trading at 18 times its estimated profit, after extending last year's biggest rally in 18 years. SEBI, the nation's market regulator report, that overseas funds, bought a net 7.14 billion rupees (Dh563.048 million) of Indian equities on Aug 20, 2010, raising total investments in the stocks this year to 583.7 billion rupees.

Inflow from overseas reached a record 834.2 billion rupees in 2009, exceeding the high set two years ago in local currency terms, as the biggest advance in 18 years lured foreign funds. They sold a record 529.9 billion rupees of shares in 2008, triggering a record annual decline.