NEW YORK (Reuters)- Gold rose on Wednesday as the market remained firm even as the dollar regained ground against the euro in late trading after the Federal Reserve stated optimism that the U.S. economy was stabilizing.



But gold kept its appeal as an inflation hedge as the Fed pledged to keep interest rates low at a time many investors fear inflation may be picking up. These factors would be bearish for the dollar and bullish for gold in the long term.
Spot gold was bid at $1,137.90 an ounce by 4:15 p.m. EST (2115 GMT), up from $1,124.40 late in New York on Tuesday. It had dipped as low as $1,128.80 after the Fed released its statement.
U.S. gold futures for February delivery on the COMEX division of the New York Mercantile Exchange settled at $1,136.20 an ounce, up $13.20. After the settlement, it moved up to $1,138.90, near its pre-Fed levels.
Gold slipped off session highs for awhile as the dollar rebounded against the euro after the Fed left interest rates unchanged.
As had been widely expected, the Fed reaffirmed it would keep short-term rates low. The Fed also said it expected inflation to remain stable for some time.
Investors expect gold to benefit from continued low interest rates, which would keep the dollar weak.
The Labor Department reported that consumer prices edged up a modest 0.4 percent last month, but some analysts said they see signs that inflation has picked up, which would support gold as an inflation hedge.
“The Fed is worried that people sitting at home will keep inflation quiescent, but they are wrong. … there is no evidence of deflation,” said Delta Global Advisors senior market strategist Michael Pento in California. He cited increases in import prices and other indicators.
At current low interest rates near zero, Pento said, “the Fed has guaranteed negative (U.S.) interest rates as far as the eye can see.”
The low interest rate environment will also favor higher yielding gold as an investment, he said.
The weak dollar had been supporting precious metals earlier in the day, as risk appetite increased with a rise in stocks and commodities.
“Going into year-end, with relatively thin trading in both the currency and the gold markets … gold is likely to be driven in large by the currency moves,” said Daniel Major, an analyst at RBS Global Banking & Markets.
A softer dollar versus the euro boosts gold’s appeal as an alternative asset and makes dollar-priced commodities cheaper for holders of other currencies
Speculative investors attracted to what they perceive to be the metal’s good value after a $100 price retreat from record levels over the last two weeks are also providing key support for gold prices on the downside, traders said.
On the physical side of the market, India’s gold demand turned weak as traders sought lower prices, after the offtake picked up slightly late in the previous session, dealers said.
The SPDR Gold Trust, the world’s largest gold-backed exchange-traded fund, said its holdings were unchanged on Tuesday from the previous session.
Among other precious metals, silver was at $17.69 an ounce versus $17.41, platinum was at $1,451.50 an ounce versus $1,445.50 and palladium at $371.0 versus $363.80 in late New York dealings.

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Dubai’s stock market rose sharply as Abu Dhabi announced a 10-billion dollar bail out for debt-laden Dubai World. The unexpected news brought some welcome relief to the market.

Dubai’s benchmark stock index led a surge Monday on regional markets, jumping more than 10 percent. This was the market’s biggest one-day gain in fourteen months.
Fadi Ajaj, stockbroker, said, “Today the stocks in the DFM and in the ADX have surged today on the news about the bailout from Abu Dhabi, the 10 billion dollar bailout from Abu Dhabi, of course this was a very pleasant surprise for every investor in the UAE and outside the UAE.”

Dubai says 4.1 billion dollars of that bailout is allocated to property developer Nakheel to repay its Islamic bond which matured on Monday.

The remaining funds will be used to help Dubai World, which has asked creditors to agree to restructure 26 billion dollars of its debt, until the end of April next year.


Gulf Stock Markets Fall Again On Dubai Fear
The Dubai stock market plunged by 6.25% on opening, coming back only slightly to end the day 5.61% down.

Abu Dhabi, which has pledged to help to its stricken neighbour “on a case-by-case basis”, saw its main index slip another 3.5%.

Markets in both emirates fell by more than 7% on Monday, their first day of trading after the four-day Muslim holiday of Eid al Adha.

Meanwhile Qatar’s DSM Index, which was closed on Monday, joined the slide on opening.

Dubai revealed at the start of the Eid festival that the government’s holding company, Dubai World, had asked for delays on payments of debts of £35bn.

The revelation has sent shockwaves through world stock markets amid fears Dubai would default on its debt payment.

But investors in London came out of the blocks in a far brighter mood on Tuesday.

The FTSE 100 index closed up by more than 2%, mirroring gains in Europe.

Confusion among global investors over Dubai World persisted as the city-state seemed to have washed its hands of the massive, debt-ridden investment conglomerate.

The muddled message from Dubai has fuelled worries over the future of Dubai World, which is involved in projects around the globe – from Gulf banks to UK ports and the Turnberry golf course in Scotland.

Dubai finance official Abdulrahman al Saleh said on Monday that lenders should take some of the responsibility for the problems.

He argued that lenders, investors and contractors had got involved with the company on the basis of the feasibility of its projects, not on assurances provided by Dubai’s government.

Dubai’s stock market closed Wednesday with a 2.54 percent rise on growing confidence in the Gulf emirate over its debt relief.

The Dubai Financial Market index closed at 1,889.99 points, while the bourse in neighbouring Abu Dhabi posted a slight loss of 0.94 percent, finishing at 2,767.80 points. Leading Emaar Properties surged 6.99 percent, while the shares of giant construction firm Arabtec closed 4.80 percent stronger. The Abu Dhabi Stock Exchange’s general index climbed almost eight percent on Monday on the back of the announcement, which came amid concerns Dubai would default on the debt.

On Tuesday, however, Dubai shed 1.49 percent and Abu Dhabi lost 0.96 percent as investors took profits and digested the previous day’s news of the Abu Dhabi debt bailout, analysts said. Trading on other Gulf exchanges on Wednesday resulted in a mixed bag of small rises and slight falls. Saudi Arabia’s stock market, the largest in the Arab world, closed with a gain of 0.72 percent on Wednesday, rising to 6,153.85 points. Kuwait’s bourse closed with a 1.20 percent increase and Qatar’s closed 0.40 percent higher, while Oman’s market posted a decline of 0.36 percent. Bahrain’s exchange was closed Wednesday for National Day.

Even more striking were the cash flow figures, with revenue down by 78pc to $540m for the company, at the centre of a crisis over calls for a debt “standstill” by its owner, Dubai World.

The news sent Dubai’s stock markets plunging again on Wednesday, with a fall of 6.4pc on the general index taking it back to where it started the year.

Panic has started to spread to other state-owned companies, especially in the property sector, with Emaar, developer of the Burj Dubai, the world’s tallest building, falling 9.9pc after Moody’s downgraded its credit rating. Arabtec Holding, the United Arab Emirates’ biggest construction firm, also fell 9.9pc over fears of its exposure to Nakheel.

In a research note, Barclays said that other “Dubai Inc” companies would have difficulty in tapping the debt market, threatening a wider contagion.

Dubai World is facing a battle with creditors over its request that they “standstill” $26bn of debt, including a $4bn Islamic bond repayment by Nakheel due on

The latest figures show how difficult it will be for Nakheel to find the money if the government maintains its stance that it does not guarantee the debt of state companies.

They also indicate the continuing crisis likely to face both the company and the emirate even if the short-term funding crisis is resolved amicably. The company said it did not have the cash to continue work on all its large stock of unfinished office blocks and its artificial island developments, which represent liabilities estimated at billions of dollars more.

The company also lowered the value of its land and properties under construction by $3.5bn. Property prices have fallen by half in the Emirate in the last year, and analysts expect further write-downs.

Other figures released on Wednesday put Dubai’s financial problems in a broader context. The United Arab Emirates as a whole has made 16pc of its professional workforce redundant in last year, with Dubai being the worst hit, according to a survey by gulftalent.com, a recruitment website.

The property sector was the worst hit. Pay rises continued at above the rate of inflation, though, with an average of 5.5pc across the UAE.

United Arab Emirates

One of Dubai’s two stock exchanges changed its name to Nasdaq Dubai on Tuesday, building on the brand of its minority shareholder as it tries to establish the city as a global financial hub.

The switch from Dubai International Financial Exchange takes effect immediately.

“This initiative is extremely important for us to take Dubai forward and to contribute and add value to the development of capital markets in the region,” Essa Kazim, chairman and chief executive of Borse Dubai, the exchange’s biggest shareholder, told reporters at the rebranded company’s headquarters.

In an effort to raise the Dubai board’s visibility, exchange operator and one-third owner Nasdaq OMX Group Inc. will list its own shares on the Nasdaq Dubai starting Thursday. The company’s stock will also continue trading on the main Nasdaq exchange in New York.

Nasdaq Dubai is primarily focused on international stocks, while crosstown exchange Dubai Financial Market mostly lists local stocks. Both compete for capital against numerous regional trading floors.

The exchange now known as Nasdaq Dubai last month announced a series of initiatives aimed at boosting its relatively small trading levels and enticing more of the region’s wealthy investors. It has attracted only 15 companies other than its U.S. shareholder.

On Wednesday, the exchange plans to begin offering futures tied to a basket of UAE stocks, most of which are listed on other local exchanges.

Starting next week, the exchange will open Sundays for a six-day week. It is also making it easier for U.S. companies to create a secondary listing in Dubai.

Many of you might find this article contradictory and some even ridiculous, especially by the time when RBI has bought 200 tons of Gold form IMF at peak valuations. But we will just speak about the plain facts and the opportunities that are hidden.
If i can bet my life in predicting something that you own, i would bet on Gold rather than any stocks or cars or bonds or even homes. Such is the passion and addiction that we Indians have on this shining yellow metal. A French traveler to the country quoted – “It should not escape notice that gold and silver, after circulating in every other quarter of the globe, come at length to be absorbed in Hindostan.”

Another one from early 1700s quoted – “Every nation, that ever traded to the Indies, has constantly carried bullion, and brought merchandises in return. … commerce of the Romans to the Indies was very considerable … this commerce was carried on entirely with bullion … bullion was always carried to the Indies, and never any brought from thence.”

The reasons for this addiction are many. It comes from cultural, traditional and religious sources. The very reason that the country has witnessed rise and fall of many kingdoms and invasions also support the fact that there was merit for the subjects to hold their wealth in Gold which can be easily hidden. Also, gold coins issued by one king was valid with the other, provided it was of good quality.

India’s private Gold holdings – Coming to the present, we Indians hold around 20,000 tons of Gold. The private holdings of 20,000 tons of gold in our country dwarfs the Official reserves of RBI (550 tons) and even that of US (8000 tons). The country is home to 14% of Gold that were ever mined in History. The total value of these private holdings in our homes can be pegged at more than 750 billion US dollars.

Unproductive – So where are these many tons of Gold hiding? They are hidden in the bangles or the chains or other ornaments, our families have. They are present in the form of Jewelry and ornaments that either lie idle in our homes or in locked in the vaults with the banks. In either case, they are “unproductive”.

Imparting Liquidity – Consider this – The country needs to invest around 500 billion USD in its infrastructure before the financial year ending March 2012 to maintain high growth rates of 9% or 10%. 100 billion dollars will be sufficient to ensure safe drinking water to all the citizens and another 50 billion dollars go a long way in improving sanitation facilities and health facilities. Another 50 billion dollars may be needed to provide reasonable shelter to the all the needy.

Now, tell me, don’t you think that in a country like India, which has the most poor in the world, Gold which locks down down 750 billion USD of value, a curse ? What wonders can this value do, if there is a way where we can impart liquidity to it?

Failure of RBI and GOI – The RBI and GOI has tried its best over the last five decades to impart liquidity to these private holdings with out any kind of success. The Gold control order that the RBI came up with during the Chinese war to discourage Gold buying was a complete disaster. Various Gold mobilization schemes and Gold bonds that the RBI introduced where interest will be paid on Gold deposits was also a thorough failure.

In its 1999-2000 budget, the Indian government announced a new initiative to try and tap the hoard of private gold held in India, this time by permitting commercial banks to take gold deposits of bars, coins or jewelry against payment of interest. Each bank can set their own interest-rate levels, with deposit periods ranging between three and seven years. The State Bank of India was the first to accept deposits, but to date the amount of gold collected under this scheme is just 10 tons.

Seeing these incidents and facts that have failed in imparting liquidity to the private gold holdings, it would be a great achievement if somebody can come up with a framework which can tap into these holdings and impart liquidity. It would be hugely productive, if at least the liquidity is imparted on a short term manner, which could translate into economic activity.

Few Winners – At this juncture, i should also acknowledge that there are businesses and entities which have tasted success in doing what the RBI and GOI could not do for five decades. These companies will go down as major achievers and have a promising future.

During 2003-2008, so great was the fascination with the construction, infrastructure and real estate that any company even remotely associated with this theme saw its value skyrocketing. I say this because many companies at that time were not into construction or any related activity, but still their value enhanced. This is because they had good lank banks sitting on their balance sheets.

I am talking about all this because while searching through various stocks, I came across a company which is currently quoting at a market cap of Rs 163 crore, while the operating income does not justify such a valuation.

However, as I mentioned it has good amount of cash and Land bank with it.