Broker's Notes: Gold prices edge up with a pause in US dollar

Gold prices edged up on physical demand and a pause in a dollar rally as investors closely watched for currency signals from the Group of 20 leadership summit that began on Thursday in Seoul. Gold gained 0.3 percent to $1,407.35 an ounce off the all-time high of $1,424.10 hit on Tuesday. A deeply divided G20 struggled to move beyond broad promises of economic cooperation and into thorny issues of exchange rates and trade balances as world leaders gathered in Seoul for a two-day summit. The gold-silver ratio, used to measure how many ounces of silver are needed to purchase one ounce of gold, stood at 51.11, just above 50.92 hit on Tuesday, its lowest since mid-2008 and well under a 28-year average at 64.79.  The holdings have risen six percent from a month earlier and 15 percent from two months earlier. In comparison, holdings in the SPDR Gold Trust were little changed from one month earlier, even two months earlier.

US dollar

The US dollar lost steam on Thursday after four days of gains but remained close to significant barriers which if broken could see its short-covering rebound stretch higher against the likes of the yen and euro. In Seoul G20 leaders were gathering to discuss currencies and global economic imbalances. But negotiators wrangled over the wording of a communique expected on Friday, and the statement was not expected to venture much beyond a finance ministers' agreement last month.

The US dollar has rallied more than 3 percent against a basket of major currencies in the past four sessions, breaking above 78.0 for the first time in two weeks on Wednesday. However, it stopped short of October's highs at 78.273 and 78.364, resistance to beat if its correction is to extend much higher. It was last at 77.548, down 0.1 percent.  The euro, which hit a five-week trough of $1.3670 on Wednesday, rose 0.1 percent to 1.3800. It has corrected sharply from a 10-month high above $1.4280 set a week ago. Chart wise it needs to stay above the $1.3670 trough to avoid a possible move down to $1.3363-1.3333. $1.3363 is the 38.2 percent retracement of its rally from June to November. It remains vulnerable to persistent worries about the fiscal health of peripheral euro zone sovereigns and their ability to fund themselves in markets.

Yen

After rising almost to its September pre-intervention low of 82.87 yen on Wednesday, the dollar was holding above 82.00 yen with a re-test of the 82.87 barrier not ruled out. But there was talk of dollar sell orders from Japanese exporters above 82.50 yen, with more near-term resistance at 83 yen. Long-yen speculative positioning remained high, increasing the risk of position unwinding into the year end, while a rise in US-Japan yield differentials could also help. On the charts, a break above the Sept. 15 low, set just before Japanese authorities intervened to sell yen, would open the way for a move up to the dollar's 2009 low of 84.82 yen. It was down 0.1 percent on the day at 82.18 yen.    The Veterans Day holiday in the United States, where some markets will be shut, was helping keep the market subdued.

Indian rupee

The Indian rupee strengthened on Thursday, helped by the dollar's loss against majors and early gains in stocks, but dealers said it may come under pressure on likely importer dollar demand and lack of large dollar inflows. Power Grid Corp of India, the world's third-largest power transmission company, on Tuesday launched a share sale to raise up to $1.7 billion before it closes on Friday. The sale was fully covered on its first day. Foreign funds have bought shares worth a record $28.5 billion so far in 2010, compared with last year's $17.5 billion. Indian shares were trading down 0.2 percent after rising as much as 0.3 percent in early trade on Thursday taking cues from firm Asian markets.

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