Broker's Notes: Gold pauses to see which the wind blows

Gold was steady on Tuesday, aided by physical buying, while investors continued to watch the progress in euro zone's debt problem and tensions in the Korean peninsula for trading cues. Uncertainties about how the euro zone would stabilise its fiscal conditions continued to bother investors, even after an agreement over the weekend on a $115-billion bailout package for debt laden Ireland. Gold might benefit from safe-haven buying, if situations in Europe and Korea peninsula deteriorated. But a stronger dollar, another beneficiary of political and economic uncertainties, could weigh on gold prices.

Euro

The euro won some respite in Asian trade on Tuesday but few traders think the worst is over for the single currency after a rescue package for Ireland failed to help restore investor confidence in euro zone debt. Markets expect more selling in the euro after Italian and Spanish 10-year bond yields jumped by more than 20 basis points on Monday, their biggest daily rise in more than a decade -- highlighting the lack of confidence in the 85-billion-euro deal to help contain Ireland's debt crisis. The euro has managed to scrape small gains for now, however, helped by short-term oversold technical signs. The euro ticked up to $1.3140 up just 0.1 per cent from late US levels, but about 0.6 per cent above a 10-week low of $1.3064 hit on Monday. It was dangling around the crucial 200-day moving average at $1.3128.

US dollar

US dollar dipped against the yen on month-end selling by Japanese exporters. It fell 0.1 per cent to 84.12 yen but remained in sight of a two-month high of 84.41 hit on Monday, having risen nearly 5 0 per cent from a 15-year low of 80.21 yen set on Nov. 1. The Australian dollar climbed 0.3 per cent to $0.9651 after data showing exports from Australia were less of a drag on growth last quarter than many feared. Still, the currency was down some 5 per cent from a 28-year peak of around $1.0182 set early in the month. The US dollar remained solid, with its index against a basket of major currencies staying near Monday's two-month high of 81.142. Now at 80.70, the index could target its 200-day moving average of 81.78.

Rupee

Indian shares and rupee trimmed losses while the benchmark 10-year bond yield rose marginally after data on Tuesday showed the economy expanded at a faster-than-expected 8.9 per cent in the September quarter. The median forecast was for an annual rise of 8.3 per cent. The main stock market index trimmed losses to be down 0.2 percent, from 0.6 per cent earlier.

Sterling

Sterling hit a two-month high against a broadly weak euro on Monday as investors looked beyond a debt rescue plan for Ireland and dumped the single currency on concerns that other euro zone nations may also require help. However, GBP was unable to capitalise on a widely expected rise in the growth forecast held by the UK's fiscal watchdog, as it cut is growth forecast for 2011 and nudged up its expectations for public sector borrowing in the mid-term. Signs the UK economic recovery will be subdued are also expected to limit any big upside in sterling for the moment. The Office for Budget Responsibility on Monday raised its growth forecast to 1.8 per cent from 1.2 percent forecast in June, but it cut its 2011 forecast from 2.1 per cent from 2.3 per cent in its earlier estimate. Signs the housing market continues to struggle may also dent the pound. Data on Monday showed the number of mortgage approvals in Britain fell to its lowest in eight months in October.

Source: Richcomm Global Services DMCC, Dubai