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--- Begin Message ----Caveat Lector------------------------- Yahoo! Groups Sponsor --------------------~--> <FONT COLOR="#000099">$9.95 domain names from Yahoo!. Register anything. </FONT><A HREF="http://us.click.yahoo.com/J8kdrA/y20IAA/yQLSAA/WfTolB/TM";><B>Click Here!</B></A> --------------------------------------------------------------------~-> Dollar Drops Further as Central Banks Reassess Reserves By Eric Pfanner International Herald Tribune at The New York Times Friday, November 26, 2004 http://www.nytimes.com/2004/11/26/business/26dollarcnd.html?oref=login LONDON -- The falling dollar reached new depths against the euro today, after a weeklong erosion of value prompted by concern that the dollar's status as the premier international reserve currency is growing more precarious. The central bank of Russia said today that it would stop trying to peg the ruble solely against the dollar, shifting instead to a target based on a basket of global currencies. That could result in a decline in dollar purchases by the Russian central bank, whose currency reserves are dominated by dollar assets. The biggest questions hang over Asian central banks, which have bought hundreds of billions of dollars' worth of United States Treasury securities and other dollar-denominated assets in recent years to slow the decline of the dollar, in order to safeguard their countries' exports to the United States. Comments by a Chinese central bank official, suggesting that the bank might slow its dollar purchases, briefly sent the American currency into a volatile spin before they were retracted. Analysts say any move to shift those banks' assets out of dollars could result in a sharp long-term fall in the dollar, given that the United States requires a steady inflow of close to $2 billion a day in international funds to finance its current-account deficit, a broad measure of trade in goods and services. "The present situation could be maintained for a while yet, but overseas investors are unlikely to continue accumulating dollar assets at the current rate indefinitely," said Charles Bean, chief economist at the Bank of England, in a speech late Thursday. His comments appeared to echo a warning from Alan Greenspan, chairman of the Federal Reserve, last week. By adding more euros and other currencies into the mix, central banks overseas would be able protect themselves against a loss of value in their holdings if the dollar continues to slide. The currency mixes of those banks' reserves may also reflect more accurately the trade relationships of their economies. A number of comments from Asian central bankers in recent days suggest that these banks are at least growing more reluctant to add to their vast quantities of dollar reserves, even if, analysts say, no wholesale move to dump them seems imminent. The Chinese central bank official, Yu Yongding, appeared today to confirm market fears of a reappraisal of the bank's dollar holdings. The dollar bounced back, however, after a clarification from Mr. Yu, published on a Web site. Analysts said it remained unclear whether any policy changes were immediately in store at the Chinese central bank. "Treat the story with caution, as it appears a tad dramatic," analysts at ABN AMRO wrote in a note to investors. Indeed, the report, from China Business News, appeared to reflect confusion over the nature of China's dollar-denominated holdings. It quoted Yu as saying China had cut its Treasury holdings to $180 billion. But United States government data had recently shown Chinese holdings of only $174 billion in Treasury bonds. If bonds issued by United States government agencies and other assets are included, however, China's dollar reserves probably are far higher. Analysts at Barclays Capital said the central bank has total international reserves of more than $500 billion, about 70 percent of which probably has been invested in dollars. A number of comments from other Asian central bankers -- often quickly denied when reported by news agencies -- have fueled speculation that their employers might consider shuffling their portfolios. On Tuesday, a Russian central bank official, Alexei Ulyukayev, said his bank was considering altering the mix of its reserve holdings, possibly adding more euro-denominated assets, as the dollar weakens. And today, the bank's deputy chairman, Konstantin Korishchenko, said the bank would henceforth aim to keep the ruble trading within a range determined by a basket of currencies, not just the dollar. The dollar, which traded as low as 102.18 Japanese yen after Yu's remarks, bounced back to 102.59 yen in New York today, up marginally from 102.58 yen late Thursday. The euro, which soared as high as $1.3329, was quoted late in New York at $1.3297, still up from $1.3240 on Thursday. The size of the swings in the dollar today may have been magnified by the fact that currency trading desks were thinly staffed because of the Thanksgiving holiday in the United States and because Mr. Yu's comments came during the nighttime hours in London, the hub of global foreign-exchange trading. Still, analysts say the overall tone for the dollar remains negative amid growing concern about the gap in the United States current account, as well as the shortfall in the federal budget. Against the euro, "$1.35 now seems a natural target in the current dollar-selling frenzy," the ABN AMRO analysts wrote. Other analysts say the dollar could fall further next year. Still, a cautious tone prevailed in the markets as traders sought to prevent overexposing their own positions. Because the dollar has dropped so rapidly, falling nearly 8 percent against the yen since early October, for instance, it could bounce back sharply in the short term as traders take profits. Also, there is the possibility of market intervention by central banks to try to prevent a sudden loss of confidence in the dollar. Most analysts think the Federal Reserve and the European Central Bank are unlikely to intervene in the near term, though the ECB would grow increasingly worried about the strength of the euro if it climbed over $1.35. Meanwhile, China has signaled that it will continue to resist calls to revalue the yuan in the near term, and Japanese policy makers want to avoid an overly steep climb in the value of the yen, which could undermine Japan's economic recovery. As the dollar has fallen in recent weeks, it has pushed up the value of gold and oil. Trading in both of those commodities is denominated in dollars, so some of the movement is simply a balancing effect as the dollar weakens. But gold is also seen as a store of value at times of uncertainty in the markets. Today as the dollar fell, gold prices briefly surged above $455 an ounce, the highest price since June 1988, before easing back. * * * Diving Dollar Puts Japan on Notice By Barney Jopson Financial Times, London Friday, November 26, 2004 http://news.ft.com/cms/s/18c2ec6a-4003-11d9-bd0e-00000e2511c8.html The conditions for a revival of Japanese currency intervention appear to be falling into place: The yen came close to a five-year high against the dollar this week; foreign exchange worries have depressed the stock market; and Japanese officials have cranked up their rhetoric on action against "unstable" currency moves. But in spite of growing market expectations, the "verbal intervention" does not yet seem to have translated into action. The authorities' decision to hold fire, analysts say, reflects circumstances today that are different from those in the six months to March, when there was a record-breaking Y26,000 billion ($253 billion, E191 billion, �134 billion) intervention spree. The economy is now better able to cope with a stronger yen, says Richard Jerram, economist at Macquarie Securities, who points to steady improvements in corporate profits, output, and business confidence since the start of the year. Gross domestic product growth has stalled since April, having run at over 6 percent in the six months to March. However, the authorities halted their currency intervention in mid-March and have stayed out of the market since then. Mr Jerram says the Ministry of Finance, which employs the Bank of Japan to carry out intervention, now has more confidence in the economy. "In the first quarter there was not a widely held view that the economy had great durability. There was a fear that excessive currency moves might end the recovery," he said. In comments earlier this week, Hiroshi Okuda, head of the Keidanren business lobby and chairman of Toyota Motor, was careful not to sound alarmist about the effect of a strong yen on the competitiveness of exporters, linchpins of the Japanese economy. With the yen then trading at Y103.3 to the dollar, before it rose as high as Y102.15 yesterday, Mr Okuda said: "If the current level persists for a long time, it will probably have an influence on companies. We need to watch the situation a little further." Like many other observers, Tomoko Fujii at Nikko Citigroup expects the authorities to restart intervention once the exchange rate hits Y100. "Exporters have not assumed a double-digit yen figure," she said, alluding to expectations of a Y106 rate recorded in a recent central bank business survey. "When yen appreciation begins to undermine business confidence, then intervention will come." So far, though, foreign exchange movements have not forced any companies to downgrade profit forecasts. This is partly because many put currency hedges in place in the first quarter to protect themselves until the end of the fiscal year next March. For some corporations, Ms Fujii notes, a strong yen makes life easier. It reduces the burden imposed on importers by high oil and commodity prices, a point not lost on the government. Rather than complain about the level of the exchange rate, Sadakazu Tanigaki, finance minister, has continued to condemn the speed of its movement, which tends to unnerve stock market investors as much as anything else. "We will take timely and decisive action against sudden and unstable movements," he said on Friday, repeating a mantra used throughout this year. In starker terms, Hiroshi Watanabe, vice-finance minister, told Dow Jones last weekend: "The movement in currencies in the past seven days has been rapid and erratic, meaning this is the proper time to think of intervention." Other policy-makers have not been averse to talking the yen down. Toshihiko Fukui, Bank of Japan governor, recently told the Financial Times he was puzzled at the dollar's rapid fall, given that the US economy was stronger than that of Europe or Japan. "From the cyclical perspective, there is no reason the dollar should be declining," he said. Currency investors, however, are convinced the US is willing to let the greenback weaken, and continue to sell dollars on concern about the US deficits. Tohru Sasaki, chief foreign exchange strategist at JPMorgan Chase in Tokyo, says "real money investors" and companies are driving the dollar down, not speculators. That raises doubts about the likely effectiveness of Japanese intervention as it tends to have the biggest impact only when speculators follow the Bank of Japan's dollar buying. "We see structural downward forces on the dollar and an expectation of upward pressure on Asian currencies," says Ms Fujii at Nikko Citigroup. "So there is no guarantee that intervention will be effective in stemming yen appreciation. It may be difficult." ---------------------------------------------------- To subscribe to GATA's dispatches, send an e-mail to: [EMAIL PROTECTED] To unsubscribe, send an e-mail to: [EMAIL PROTECTED] ---------------------------------------------------- RECOMMENDED INTERNET SITES FOR DAILY MONITORING OF GOLD AND PRECIOUS METALS NEWS AND ANALYSIS Free sites: http://www.jsmineset.com http://www.cbs.marketwatch.com http://www.mineweb.com/ http://www.gold-eagle.com/ http://www.kitco.com/ http://www.usagold.com/ http://www.GoldSeek.com/ http://www.GoldReview.com/ http://www.capitalupdates.com/ http://www.DailyReckoning.com http://www.goldenbar.com/ http://www.silver-investor.com http://www.thebulliondesk.com/ http://www.sharelynx.com/ http://www.mininglife.com/ http://www.financialsense.com http://www.goldensextant.com http://www.goldismoney.info/index.html http://www.howestreet.com http://www.depression2.tv http://www.moneyfiles.org/ http://www.howestreet.com� http://www.minersmanual.com/minernews.html http://www.a1-guide-to-gold-investments.com/euro-vs-dollar.html http://www.goldcolony.com http://www.miningstocks.com http://www.mineralstox.com http://www.freemarketnews.com http://www.321gold.com http://www.SilverSeek.com http://www.investmentrarities.com http://www.kuik.com/KH/KH.html � (Korelin Business Report -- audio) http://www.plata.com.mx/plata/home.htm � (In Spanish) http://www.plata.com.mx/plata/plata/english.htm � (In English) http://www.resourceinvestor.com/ http://www.miningmx.com Subscription sites: http://www.lemetropolecafe.com/ http://www.goldinsider.com/ http://www.hsletter.com http://www.interventionalanalysis.com http://www.investmentindicators.com/ Eagle Ranch discussion site: http://os2eagle.net/checksum.htm Ted Butler silver commentary archive: http://www.investmentrarities.com/ ---------------------------------------------------- COIN AND PRECIOUS METALS DEALERS WHO HAVE SUPPORTED GATA AND BEEN RECOMMENDED BY OUR MEMBERS Blanchard & Co. Inc. 909 Poydras St., Suite 1900 New Orleans, Louisiana 70112 888-413-4653 http://www.blanchardonline.com Centennial Precious Metals 3033 East 1st Ave., Suite 403 Denver, Colorado 80206 www.USAGold.com Michael Kosares, Proprietor US (800) 869-5115 Canada 1-800-294-9462 European Union 00-800-2760-2760 Australia 0011-800-2760-2760 [EMAIL PROTECTED] Colorado Gold 222 South 5th St. Montrose, Colorado 81401 www.ColoradoGold.com Don Stott, Proprietor 1-888-786-8822 [EMAIL PROTECTED] El Dorado Discount Gold Box 11296 Glendale, Arizona 85316 http://www.eldoradogold.net Harvey Gordin,� President Office: 623-434-3322 Mobile: 602-228-8203 [EMAIL PROTECTED] Investment Rarities Inc. 7850 Metro Parkway Minneapolis, Minnesota 55425 http://www.gloomdoom.com Greg Westgaard, Sales Manager 1-800-328-1860, Ext. 8889 [EMAIL PROTECTED] Kitco 178 West Service Road Champlain, N.Y. 12919 Toll Free:1-877-775-4826 Fax: 518-298-3457 � and 620 Cathcart, Suite 900 Montreal, Quebec H3B 1M1 Canada Toll-free:1-800-363-7053 Fax: 514-875-6484 http://www.kitco.com Lee Certified Coins P.O. Box 1045 454 Daniel Webster Highway Merrimack, New Hampshire 03054 www.certifiedcoins.com Ed Lee, Proprietor 1-800-835-6000 [EMAIL PROTECTED] Miles Franklin Ltd. 3015 Ottawa Ave. South St. Louis Park, Minn. 55416 1-800-822-8080 / 952-929-1129 fax: 952-925-0143 http://www.milesfranklin.com Contacts: David Schectman, Andy Schectman, and Bob Sichel Missouri Coin Co. 11742 Manchester Road St. Louis, MO 63131-4614 [EMAIL PROTECTED] 314-965-9797 1-800-280-9797 http://www.mocoin.com Resource Consultants Inc. 6139 South Rural Road Suite 103 Tempe, Arizona 85283-2929 Pat Gorman, Proprietor 1-800-494-4149, 480-820-5877 [EMAIL PROTECTED] Swiss America Trading Corp. 15018 North Tatum Blvd. Phoenix, Arizona 85032 http://www.swissamerica.com Dr. Fred I. Goldstein, Senior Broker 1-800-BUY-COIN [EMAIL PROTECTED] ---------------------------------------------------- HOW TO HELP GATA If you benefit from GATA's dispatches, please consider making a financial contribution to GATA. 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