Broker's Notes: Gold pulls back after more than $30 drop

Gold

Gold bounced up nearly half a percent on Wednesday, after pulling sharply off a record high in the previous session, as worries about euro zone sovereign debt kept market sentiment buoyant. Gold rose 0.4 percent to $1,397.81 an ounce by off the all-time peak of $1,424.10. Gold dropped more than $30 from the peak in the previous session, triggered by a sharp sell-off in US silver futures caused by a 30 percent hike in margins as well as a stronger dollar. But precious metals seemed to be recovering from the shock, with silver leading the complex with a 1.6 percent gain, as investors, concerned about unstable fiscal situation in Europe and wary of inflation risks lying ahead, continued to buy into the metals. Usually a stronger dollar suppresses gold prices, but the greenback had risen half a percent against a basket of currencies, while gold stayed in the positive territory too.

Euro

The euro, which lost 1% on Tuesday as euro zone debt concerns pressured it, twice bounced off support at $1.3735 although its recovery was limited.  The euro has key support at $1.3700, with a break there opening up the possibility of a test down to $1.3365. A near-term risk for the euro is a Portuguese government bond auction later on Wednesday. Portugal, seen by markets as a possible candidate for a Greek-style bailout, is scheduled to sell up to 1.25 billion euros ($1.72 billion) of government debt. The premium investors demand to hold Irish and Portuguese debt over benchmark German bunds has blown out to euro lifetime highs and traders said the European Central Bank was again forced to step in on Monday to calm the market.

Australian dollar

Feeding into investor caution was data showing China's exports and imports grew slightly less than expected in October, while comments by an adviser to China's central bank that it should shift its monetary policy stance to "prudent" from appropriately loose next year weighed on the Australian dollar. The Aussie, which briefly dipped below parity on Tuesday, eased slightly to $1.0029 down about 2 percent from a 28-year peak above $1.0180 set this month.

Sterling

Sterling was steady after breaching support at $1.6000 to stand at $1.5984. Sterling's near-term fortunes hinge on a Bank of England inflation report due at 1030 GMT. Markets are still betting the central bank may eventually expand its 200 billion pound ($320 billion) asset purchase programme, although recently firm data have reduced expectations of such a move.

Indian rupee

The Indian rupee edged lower on Wednesday morning tracking sharp gains in the dollar versus major units, while marginal losses in domestic shares failed to provide clarity on the direction of foreign fund flows. 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. Traders expect inflows towards the share sale to continue and limit the rupee's downside at around 44.50 in the near-term. Indian shares were 0.2 percent lower amid a mixed bag of corporate earnings and subdued Asian peers. Foreign funds have bought shares worth a record $28.3 billion so far in 2010, in addition to last year's $17.5 billion. The rupee has gained 4.8 percent so far this year.

Oil

Oil fell for a second day on Wednesday after China's crude imports tumbled last month and the dollar strengthened, reining in the bullish effect of a surprise drop in inventories in top consumer the United States. China's crude imports fell 30 percent in October to 16.39 million tonnes, the lowest in at least 18 months, or 3.86 million barrels per day (bpd), from a record 5.67 million bpd in September, customs data showed on Wednesday. Global oil supplies will come close to a peak by 2035 when prices will top $200 a barrel, the International Energy Agency said in its 2010 World Energy Outlook (WEO), as China and other emerging economies drive demand higher.

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