No currency intervention? Jim Sinclair knows better

9:30 p.m. Thursday, August 28, 2008

Dear Friend of GATA and Gold:

Yesterday's story in the Japanese business newspaper Nikkei asserted that while the U.S. Treasury Department, European Central Bank, and Japan had devised a massive plan of currency intervention to support the U.S. dollar, no intervention had taken place:

http://www.gata.org/node/6532

Jim Sinclair, chairman of Tanzanian Royalty Exploration and proprietor of JSMineSet.com, knows better, as you'll see from his commentary tonight, which is appended.

CHRIS POWELL, Secretary/Treasurer
Gold Anti-Trust Action Committee Inc.

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Foreign Central Banks Behind Rally in U.S. Treasuries

By Jim Sinclair
www.JSMineSet.com
Thursday, August 28, 2008

If anyone wants to know why bonds have been going nearly straight up since the middle of July, just look at the charts linked here:

http://www.jsmineset.com/cwsimages/Miscfiles/6489_Charts_for_8-28-2008_C...

The first is federal agency debt holdings in the New York Federal Reserve's custodial accounts. The second chart is U.S. Treasuries holdings in those same accounts. The third is total holdings in the custodial accounts.

Foreign central bank holdings of U.S. federal agency debt holdings hit a high of $986 billion reported on July 17 this year. This week's data shows that those same foreign central banks are now down to $968 billion. In five weeks foreign central banks have sold $18 billion of U.S. federal agency debt.

Over that same period they have increased their holdings of U.S. Treasury debt from $1.363 trillion to $1.441 trillion, an increase of $77.33 billion!

For the entire five-week period beginning July 17 to the present week, total custodial holdings have increased $59.71 billion.

Foreign central banks have been busy unloading U.S. federal agency debt and acquiring U.S. Treasuries in its place and then some. One would easily get the idea that they do not feel comfortable with federal agency debt anymore. Even a cursory glance at the agency debt holdings chart shows that the last five weeks have seen the largest drop in this category over the life of the data series I am using. While we have seen reductions in their holdings from week to week on occasion over the data range, this is the first time we have seen a reduction in U.S. federal agency debt holdings that has continued for this length of time.

As a side note.... The huge amount of U.S. Treasury purchases that has sent that chart nearly vertical helps to explain the continued rally in the U.S. dollar. It is a near certainty that something has been transpiring behind the scenes involving various central banks in regard to the U.S. dollar. Should any of this foreign central bank buying abate for any reason, the dollar will lose all support immediately. With yields on U.S. Treasuries headed firmly lower, only a foolish investor would see bonds or notes as a safe haven, given what we all know about the real rate of inflation here in the United States in contrast with the absurd and insulting numbers that the knavish Feds are dishing out.

I repeat my main assertion: Foreign central banks are behind the rally in U.S. Treasuries, and as a consequence the rally in the dollar. How much longer they remain willing to play this gambit is unclear, but one thing is not at all murky: Someone is going to get stuck holding the bag.

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