Central Banks Dump $57 Billion Of US Agency Debt

Posted: Sep 16 2010     By: Dan Norcini      Post Edited: September 16, 2010 at 7:29 pm
Filed under: Trader Dan Norcini
Dear Friends,
Although I have not posted any charts of the Custodial Holdings at the New York Federal Reserve in some time, I have been monitoring it for any signs that foreign Central Banks are balking at buying US government or government-sponsored debt. Such a development would have a big impact on US interest rates not to mention the home mortgage industry.
This week a big development took place which bears further scrutiny. It occurred in the Agency Debt category where Central Banks dumped $57 billion worth of US agency debt. That is the largest one week drop that my records going back six years show. They are now at the lowest level in three years.
The drop is so extreme and so severe that I am wondering if it might be a clerical error that will be corrected next week. If not, it could well be that we are seeing signs that foreign Central Banks are getting serious about diversifying their reserves away from US dollar backed paper. Given the uncertainties surrounding the other fiat currencies globally, it is no stretch of the imagination that some of this money from the sale of such debt is making its way into the gold market.
I will continue tracking this and make some posts as developments warrant.
Click either chart to enlarge in PDF format

 

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In The News Today

Posted: Sep 16 2010     By: Jim Sinclair      Post Edited: September 16, 2010 at 2:10 pm
Filed under: In The News
Trader Dan’s Commentary
Note the conclusion drawn to this bit of news – “preparation for a long period of yen-selling intervention,”
That is indeed correct as Japan’s monetary and political leaders are under increasing pressure to derail the Yen rally as it has sucked the life out of their export sector, a sector that I might add is essential to the moribund Japanese economy.
Here comes another round of the “debase your currency” wars as each nation seeks an advantage for their products and businesses on the world market.
Is there any question remaining why gold is surging into new highs or challenging all time highs priced in various currency terms? The investing world has awakened to the games being played by the Central Banks and monetary authorities around the world.
Gold is the only currency that cannot be debased, debauched, polluted or defiled by men. It is, always has been, and always will be, a store of value, a preserver of wealth and a securer from the plundering of Central Bankers.
Japan gov’t mulls increasing funds for forex intervention
TOKYO, Sept. 16, Kyodo – The Japanese government is considering expanding a pool of funds reserved for stepping into the foreign exchange market, a move seen as preparation for a long period of yen-selling intervention, sources close to the matter said Thursday.
The nation’s monetary authorities, which intervened in the market Wednesday for the first time in more than six years, declined to comment on whether their operation has entered a second day.
They sold an estimated amount of between 1.7 trillion yen and 1.8 trillion yen on Wednesday, pushing the dollar up by about 3 yen to the 85 yen range. The amount is unusually large for one day of intervention.
More…

Hourly Action In Gold From Trader Dan

Posted: Sep 16 2010     By: Dan Norcini      Post Edited: September 16, 2010 at 2:08 pm
Filed under: Trader Dan Norcini
Dear CIGAs,
Yesterday’s pause in gold gave way to renewed buying this morning as fund money came pouring back into the market driving it past its recent record high price posted in this Tuesday’s trading. The result was another record high settlement price! Enthusiasm to own the metal is evident in the price action which is getting an additional boost by the continued strong showing of silver which seems intent on challenging $21 soon and posted yet another all time high when priced in terms of the Euro. It certainly appears that Europeans are stocking up on silver.
Weakness in the Dollar also contributed somewhat to the buying in both metals even in the face of a lower equities market which until just recently has seen money going into the Dollar. It has to be a bit troubling to Dollar bulls that even a bout of selling in the broader stock market is not attracting any substantial buying of the greenback which is looking increasingly vulnerable to a breach of support at the 81 level in the USDX. Should it fail to garner support at this level, it will be at 80 before you can say, “oligopoly”. I might add that the Japanese intervention to weaken the yen will give some support to the USDX as that currency comprises 13.6% of the basket of currencies against which the Dollar is measured in that index and prevent it from falling as fast as it might otherwise have done. It remains to be seen how Forex traders are going to handle the recent bout of intervention but so far they appear to be taking a wait and see attitude. Could be that some of the bolder among them bid it back up towards its recent ceiling to see if they can draw out a response from the BOJ.
Today’s high print in gold will act as some light resistance to be overcome prior to gold making a run towards $1,285. That is the level that needs to be taken out for $1300 to become a realistic target. Downside support in gold on any price setbacks will first appear near $1,260 followed by stronger support near $1,245.
I am still pleasantly surprised to see gold sitting at a new lifetime high yet open interest levels still off their record peak. Currently, open interest totals are a  wee bit over 592,000 contracts compared to the peak set earlier this year above 605,000.
I am also watching the long bond which is continuing to experience strong selling pressure that is dragging it further away from its top posted less than a month ago. It has dropped quite sharply in the last few weeks while at the same time gold has been moving strongly higher. This is having the effect of moving the Gold/Bonds ratio firmly in favor of gold as the metal has been outperforming the paper debt market. I am still monitoring that ratio for it will signify a shift in favor of the inflation psychology and away from the deflation scenario. I will post a fresh chart of that ratio later this afternoon or early this evening. There is a line on that chart which once crossed should spell an end to the deflation mindset. Will it be taken out? Stay tuned!
The HUI is battling to overcome the important 500 level. This barrier is taking on increasing significance as Hedge fund short -of -gold-shares are attempting to hold the line on the shares here as they ply those ratio spread trades but a strong close above this level is going to put additional pressure on the shorts as momentum shifts on the technical charts. If they were wise, they would lift those shorts now. Then again, maybe they have learned nothing from the folly of AngloGold which overstayed its welcome in its short-of-gold hedges despite repeated warnings.
The XAU needs to take out the 200 level to kick off a sharper rally.
The broader S&P 500 continues to have trouble whenever it nears the 1125 level. That has held it in check for the last few months now. It looks to be carving out a trading range with the former level the ceiling and a floor above 1000. That fits well with the economy limping along scenario.  Some of the economic data has been “not as lousy” but other reports confirm that there are strong headwinds out ahead. The market is in a relative state of truce between bulls and bears and that is what the trading range pattern confirms. A breakout in either direction will set the next trend.
It could well be that with the polls projecting strong gains for the Republicans in the midterm elections that are now only about 6-7 weeks out, investors are getting excited about the prospects for gridlock in the government which will be viewed as a positive development. Should what have now become termed, “the Bush tax cuts” be renewed, I expect that stocks will react favorably to such a development as investors will view that as friendly towards the consumer spending side of things not to mention that it will lift a burden off of the small business job engine machine. Time will tell…
Then again, there is always Ben standing in the wings, waiting to unleash QE2 should things falter…
Click chart to enlarge today’s hourly action in Gold in PDF format with commentary from Trader Dan Norcini