Broker's Notes: Gold edges higher; oil climbs

Gold

Gold prices inched higher on Thursday, and the dollar edged lower, as investors reassessed expectations of the Federal Reserve's decision next week on monetary easing.

Most leading economists expect the Fed to buy between $80 billion and $100 billion worth of assets each month in a new program to stimulate the economy.  On the physical market, Indian buyers were bargain hunting and scrap sellers were holding back for higher prices. India, the world's largest consumer of bullion, picked bargains for a second week in a row to stock for ongoing festival and wedding demand, and dealers said premiums steadied at their last week's levels of $1.10-$1.15 an ounce.

US dollar

A short-covering bounce in the dollar paused on Thursday, but a rise in US Treasury yields could prompt more buybacks in the greenback before the Federal Reserve's policy meeting next week. US bond yields have risen this week partly as euphoria over the Fed's likely asset purchase programme is being replaced by doubts over the size of such a move.

The dollar's fate has had a close correlation with US yields and their gap with rates on other currencies, as increases in US yields - other things being equal -- tend to help the greenback by making dollar investments more attractive. With the gap between Japan and US two-year yields near a three-week high and that for 10-year yields at a 2-½   month high, dollar/yen could have further room to rebound.

Indian rupee

The Indian rupee edged lower on Thursday as oil refiners bought dollars, while seesawing shares provided little clues on foreign fund flows. 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 make payments. Shares briefly turned negative after having risen about 0.6 percent early, with investors busy adjusting their positions on the last day for monthly derivatives contracts.

Bank of Japan’s forecast

The Bank of Japan on Thursday slightly lowered its economic forecast and predicted a slow exit from deflation, signalling that it will keep interest rates virtually at zero for several years to come. In its twice-yearly outlook report on the economy, the central bank stuck to its view that Japan's economy will gradually recover after a period of slow growth. The BOJ forecast core consumer inflation of 0.1 percent in the year to March 2012 and 0.6 percent in the following year. That would be far from the 1 percent consumer inflation rate that the central bank wants to see before considering bringing rates up from near-zero levels. The BOJ cut its economic growth forecast for the current fiscal year to 2.1 percent from 2.6 percent predicted three months ago.

Oil

Oil gained on Thursday as the dollar weakened and US gasoline stockpiles posted a surprise drop, while doubts lingered about the size of expected monetary stimulus by the Federal Reserve. Estimates for how long the Fed will print money and how much it will eventually spend varied widely, from $250 billion to as high as $2 trillion. US gasoline inventories fell by 4.4 million barrels last week, the Energy Information Administration (EIA) reported on Wednesday, dampening the bearish effect of greater-than-expected gains in crude stockpiles of more than 5 million barrels.

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