Broker's Notes: Gold rebounds as euro loses strength

Gold

Gold rebounded on Friday as the euro lost strength despite better-than-forecast debt auctions by Spain and Italy, while purchases from jewellers and investors, which sent premiums for gold bars to 2-year highs, offered additional support. Gold bars were offered at premiums of $3 an ounce to spot London prices in Hong Kong, and at $1.5 in Singapore. Physical dealers noted purchases from jewellers in China ahead of the Lunar New Year in February, where most Chinese return home for the holidays and demand for jewellery increases. Despite the demand from China and also top consumer India, gold was struggling to revisit the $1,400 level. The world's largest gold-backed exchange-traded fund, SPDR Gold Trust said its holdings fell to 1,265.093 tonnes by Jan 13 from 1,271.467 tonnes on Jan 11. But metals consultancy GFMS Ltd said on Thursday gold could rally to record highs above $1,600 an ounce late this year or early 2012 as safe-haven concerns fuel investment demand. 

Euro

The euro succumbed to light profit-taking on Friday, a day after staging its biggest surge in ix months on solid debt sales by Spain and tough talk on inflation by the chief of the European Central Bank. Speculation that European policy-makers may top up their war chest against attacks on euro zone sovereign debt is adding fuel to short-covering even though many market players suspect worries about the solvency of peripheral euro zone members will persist.

The euro slipped 0.2 percent in Asia to $1.3330 after having climbed as high as $1.3383 the previous day. The single currency has risen more than 3 percent so far this week from a four-month low of $1.2960 marked at the start of the week, making it ripe for profit-taking. Its 55-day moving average, which was $1.3389 on Thursday and $1.3378 on Friday, is serving as immediate resistance, though a break of that level could spark another wave of short-covering. If that happens, levels just above $1.34 could be the next hurdle, where it has a 38.2 percent retracement of the November-January slide.

ECB President Jean-Claude Trichet also said prices needed to be monitored very closely after euro zone inflation jumped last month, hinting the bank could raise interest rates to contain inflation even while the bloc is gripped by a debt crisis. His comments surprised market players, who had expected the bank to take a more dovish line at a time when some euro zone countries are facing strains in fund-raising. Euro may see some support on speculation that European policy-makers could be ready to increase the size and scope of a rescue fund. Some market players also said weak US jobless claims data had hurt the dollar, indirectly helping the euro. The initial jobless claims rose to a 10-week high and sent US bond yields lower.

Indian rupee

The Indian rupee fell on Friday tracking losses in local shares, which raised worries of foreign investors continuing to pull out funds from Asia's third-largest economy, and weighed by mild gains in the dollar overseas. The 30-share benchmark index was up 0.5 percent, with financials leading the rise after the inflation data. India's wholesale price index rose an annual 8.43 percent in December on higher food prices, surpassing forecasts and cementing expectations that the central bank will raise interest rates at its Jan. 25 policy review.

The figure compared with the median prediction for an 8.35 percent rise in a Reuters poll and was higher than the annual rise of 7.48 percent in November, which was its lowest level in a year. The annual reading for October was revised to 9.12 percent from 8.58 percent. Foreign institutional investors (FIIs) are net sellers of $520-million worth of shares this year until Wednesday, pushing the rupee down 1.3 percent. In 2010, record inflows of $29.3 billion had helped the rupee gain 4.1 percent.

Oil

Brent crude steadied above $98 on Friday after earlier this week approaching triple-digit figures for the first time in more than two years, outpacing US benchmark prices, which were dragged down by an increase in the country's jobless claims. A series of production snags from Norway to Alaska has reinforced the view that a tightening of global oil markets will benefit waterborne Brent crude over WTI, a grade delivered at the landlocked storage hub of Cushing, Oklahoma.

The pipeline shutdown had raised expectations that refiners in the US west coast would increase crude imports from the Asia-Pacific region and the Middle East. The prospect of additional supplies from the Organization of the Petroleum Exporting Countries also tempered prices. A delegate from a Gulf Opec member state said Opec will  only hold an emergency meeting if oil bursts into triple  digits and stays there, although the group's Gulf members  could informally add supply if needed.

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