Rupee ends higher vs US Dollar, Gold still shining

The rupee on Thursday recovered moderately to close at 40.4150/4250 against the US dollar on modest gain in equity markets and expectations of higher capital inflows.

In lacklustre trade at Interbank Foreign Exchange (Forex) market, the Indian unit opened better at 40.40/42 per dollar from Wednesday's close of 40.45/46. Later, it was trapped in a narrow range of 40.39 and 40.48 per dollar. It ended the day slightly higher at 40.4150/4250 a dollar.

The rupee got support from modest recovery in equity markets where the benchmark BSE Sensex rose nearly 50 points, expecting increased portfolio investments in near future.

Foreign Institutional Invesors (FIIs) have pumped in over USD 10 billion in the current year so far, near their highest investments of USD 10.7 billion in 2005.

Dealers attributed rupee's lower levels to stray buying by oil refining companies for meeting import requirements. Global crude oil prices remained high near USD 77 a barrel.

Lack of any intervention by the Reserve Bank also aided the rupee's firm trend. The recovery was also aided by announcement of hike in Cash Reserve Ratio (CRR) by RBI on Tuesday to suck excess liquidity in the banking system.

Meanwhile, the euro continued to weaken against the dollar while yen remained solid, as US credit concerns and sentiment in the equity market again hogged the spotlight.
Rupee / US Dollar Forex Currency News, Gold in India, and The Sensex index on the Bombay Stock Exchange (BSE). Euro / Rupee and Yen / Rupee.
The Rupee today closed firm at 40.42/43 per US dollar after staying highly volatile throughout the day as confusion gripped the forex market over the nature of inflows likely to come about next week.

The unit had closed at 40.45/46 yesterday.

Market observers said tuesday's hike in Cash Reserve ratio (CRR) is expected to stage its part in the market next Monday when the hiked reserve rates will become effective.

In the morning, rupee opened at 40.44/45 per dollar slightly stronger from the previous close of 40.45/46 per dollar and later inched up to a day's high of 40.39 per dollar before tumbling by 8 paise in the late day trade to 40.47 per dollar. Rupee later closed the day's trade at 40.42/43 per dollar.

''Hike in CRR accompanied by rest of the measures adopted by central bank can tighten the liquidity conditions, which may, in turn, exert pressure on Rupee value.

Rupee may stage a comeback in coming weeks along with a jump in call rates.'', said a leading dealer.

Meanwhile, forward contarcts bettered margins during the day as six-month premia ended at 1.93(1.82) per cent and annualised premia at 1.89 (1.79) per cent.

Rupee was weak against major world currencies today. Against Euro, it ended at 55.22(55.17/18) per unit. Against Pound Sterling, it closed at 82.00(81.82) per unit, while against the Japanese Yen, it was quoted at 34.00(34.06/07) per hundred units each.

Reserve Bank today fixed the reference rate at Rs 40.43 per US dollar, up by twelve paise, compared to its yesterday's rate of Rs 40.55 per dollar.
t looked simple. Stocks and stock funds were down. So gold funds rose in July.

They gained 3.73% on average, according to Lipper. It was the group's first month in the top spot since November.

In a bruising month for the overall market, it was the only sector to gain ground.

Natural resources funds gave back 0.40%. Tech funds slid 0.84%.

But gold's gain wasn't conventional. "It wasn't simply a story of stocks down, gold up," said Thomas Winmill, manager of $220 million Midas Fund MIDSX. Bullion buoyed the sector. Silver glittered even brighter. But gold stocks were largely leaden, he said.

"Petro dollars in Russia and the Middle East chased precious metals," he said. "And central banks weren't selling."

Limiting Sales

Central banks of 18 major nations have agreed to sell no more than 500 tons of gold annually. Their fiscal year ends Sept. 30. So far this year, the group has sold 350 tons. Last year banks sold less than their quota. "I expect the same this year," Winmill added. That dampens supply in the face of strong demand.

Also, the dollar kept falling vs. key currencies. That also boosted gold for global investors.

Gold stocks got hurt by rising commodity prices, Winmill said. "Mining companies use a lot of diesel, rubber tires and steel," he said. "Mining costs increased a lot. That compresses margins."

Further, many big miners have little growth or declining production. "The longer that older mines dig, the more expensive their yield becomes," Winmill said. "They literally are digging themselves into a hole."

Winmill added: "We focus on miners with growth in their portfolios. Generally, that means smaller-cap miners, with newer operations, who may be more entrepreneurial."

Platinum Prospects

In balance, Winmill prefers silver to gold. It will get more of a boost from year-end holidays and the Indian wedding season.

Silver Wheaton SLW gained 17% in July. It was powered by silver's sheen. It started from a low base, having been oversold in June.

Going forward, Winmill prefers base metals vs. precious. "Global growth will fuel commodities in general and industrial metals in particular," he said. Global demand for cars will drive use of platinum.

Winmill would be more bullish on gold if the Federal Reserve cuts interest rates. "That would hurt the dollar, helping gold," he said.

Fallout from subprime lending woes tainted much of the market in July. Investors sold off risky stocks and debt.

Financial services funds lost 7.00%. Not knowing which stocks would be stung next by problem loans and the credit crunch, investors fled the sector overall.

Real estate funds lost 7.26%. Many real estate investment trusts are heavily leveraged. Increasingly averse to credit risk, investors exited REITs.

Tech stocks were hurt less than most sectors in the market sell-off. That's because tech companies tend not to be heavily leveraged, said Kevin Landis, who runs the $700 million in five Firsthand tech funds.

Tech's strongest July theme was alternative energy. "Anything associated with that has done well all year," Landis said.

Two tech industry segments benefited. Firms involved with solar cells are getting more business.

Sunpower SPWR gained 12%. "They make the highest efficiency solar panels shipping today," Landis said. His funds own Sunpower via stakes in Cypress Semiconductor (NYSE:CY) CY.

The second hot solar segment is efficiency companies. "Their technologies let you be smarter in running a building, factory or street lights," Landis said. "Reducing wasted energy results in free energy."

Echelon ELON, which makes hardware and software that lets devices communicate via control networks, gained 26%.

Landis sees no sustained let-up at least this year for either alternative energy or efficiency firms.

July was the sixth month in a row resources funds finished among the top three sectors.

The commodities category had several drivers. Oil crossed $70 per barrel. Global GDP growth stayed strong. The dollar stayed weak. That persuaded many investors they could put their money to better use by investing in commodities, said Brian Hicks, co-manager of $1.5 billion U.S. Global Investors Global Resources Fund PSPFX.

Still, emerging markets were a soft spot for commodities funds. "They sold off as investors demanded higher rates from businesses and governments that wanted debt financing," Hicks said.

DryShips DRYS reflected demand for commodities. The dry-bulk shipper was up 218% this year through July 31. It gained 32% in July alone.