GBP & Gold

Sterling has dropped against the Dollar and the Yen overnight on the back of comments by the credit rating agency Moody's that the UK banking sector stands to lose the extraordinary support it has enjoyed from the BoE. FX traders are also pointing to the possible redemption of recently paid-out Gilt coupons as the source of Pound-selling. GBPJPY sank two hundred pips and dipped below 135.00, while GBPUSD took a similar dive to below 1.5000. EURGBP has headed up towards the 0.9100 level even though the Euro has also displayed weakness in the Asian session. The Pound didn't recieve any help from House Price Balance data released overnight which showed a smaller than expected rise in prices. After dropping 1% in yesterday's trading, gold has found stability just above the 1120 support level which is not far from its upward trend line since its 1044 low in February. Overall, bullish sentiment still dominates gold trade and those looking to buy on dips may have found an opportunity in this pullback. The medium-term target remains 1160 (the 2010 high). Current speculation in the market surrounding China's wish to expand its gold reserves was given fresh fodder overnight as a senior FX official commented that China should be prudent if it were to buy gold as the market is limited, and large-scale purchases would shift prices significantly. As China holds nearly $2.4 trillion in FX reserves, even small changes in its portfolio has the potential to move the market dramatically, and great secrecy surrounds the exact composition. According to the official, China's holdings are currently diversified in USD, EUR and JPY and invested in high-grade bonds. China's trade balance will be released tomorrow night and is likely to impact commodity prices.