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Newmont''s Lassonde takes over chairmanship of World Gold Council
12:26a ET Tuesday, March 22, 2005
Dear Friend of GATA and Gold:
"Every profession," George Bernard Shaw
remarked, "is a conspiracy against the
laity." And it seems that every meeting
of central bankers is a conspiracy
against the currency markets.
Gold and silver prices are routinely
listed with currency prices because the
precious metals are supra-national
currencies. So if central bankers often
acknowledge their manipulation of currency
markets, what is so implausible about
suggestions that they might have an
interest in and might actually be
manipulating the precious metals markets?
That seems to be an impolite question,
and so it was not posed in the reporting
that went into the news story below,
despite comments from central bankers
and currency traders that practically
cried out for a few critical questions.
CHRIS POWELL, Secretary/Treasurer
Gold Anti-Trust Action Committee Inc.
* * *
Hong Kong Policy Maker
Sees Risk in Rush to Euro
By Mark Tannenbaum
Bloomberg News Service
Monday, March 21, 2005
http://quote.bloomberg.com/apps/news?
pid=10000006&sid=aixSKWKY1EeM&refer=home
The dollar rose the most in 2 1/2 months against the euro after Hong
Kong Monetary Authority Chief Executive Joseph Yam suggested that
Asian central banks shouldn't rush to boost euro holdings at the
expense of the U.S. currency.
"The euro may become so popular in this region, it may undermine the
stability of international finance," Yam told a meeting of business
executives in Hong Kong. Asian central banks may endanger financial
markets by shifting reserves, much of which are held in U.S.
Treasury notes, too quickly, he said.
Against the euro, the dollar advanced to $1.3186 as of 9:45 a.m. in
New York from $1.3325 on March 18, the biggest gain since Jan. 4,
according to electronic currency-dealing system EBS. The dollar rose
to 105.35 yen from 104.75 and strengthened against the Swiss franc,
British pound and Canadian dollar.
"It is in no one's best interest to see a run on the dollar," said
Michael Woolfolk, a currency strategist in New York at Bank of New
York, the second-biggest custodian of investor assets. "There was a
risk that as it became apparent that more and more central banks
move to diversify their foreign exchange holdings, people may
misunderstand that to mean there is a lack of confidence in the
dollar." The euro is likely to fall below $1.30 in the next few
weeks, he said.
The dollar also gained on speculation the Federal Reserve's Open
Market Committee tomorrow will signal at a policy meeting that it
will boost the size of interest-rate increases this year as
inflation quickens. The Fed will lift the target rate for overnight
loans a quarter point to 2.75 percent, based on the median forecast
of 102 economists polled by Bloomberg News.
The U.S. currency dropped the most in six months against the euro
and the most in four months versus the yen on Feb. 22 after South
Korea's central bank announced plans to boost returns by
diversifying its currency reserves. The bank later said it wouldn't
sell dollar holdings to achieve its goal.
"What's important from our point of view as central bankers is that
it goes in an orderly way," European Central Bank council member
Christian Noyer said at the meeting in Hong Kong.
Investors in Japan and China, including the central banks, are the
biggest foreign holders of U.S. Treasuries. Japanese investors held
$702 billion of the securities as of Jan. 31, China had $195 billion
and Hong Kong had $53 billion.
"Asian central banks are very wary of a rapid appreciation in the
euro, and by default, a rapid decline in the dollar," said Monica
Fan, head of currency strategy in London at RBC Capital Markets, a
unit of Canada's biggest bank. "That's giving the dollar some
support."
Japanese Prime Minister Junichiro Koizumi said on March 10 his
country should consider diversifying its currency holdings, the
world's largest. Finance Minister Sadakazu Tanigaki said later the
same day Japan had no plan to sell its dollar assets.
The U.S. currency also advanced versus the euro after European Union
finance ministers bowed to German pressure to ease limits on
government borrowing.
European finance chiefs yesterday agreed to let countries using the
euro surpass the deficit ceiling of 3 percent of gross domestic
product when growth is sluggish or "relevant factors" such as
Germany's costs for rebuilding its ex-communist East require extra
spending.
"The pact was created to show that the members would toe the line
and keep deficit spending under control; now it seems there will be
more deficit spending which is not beneficial for the euro," said
Michael McGuinness, senior director of foreign exchange at American
Express Bank Ltd. in New York. "Investors have been critical of U.S.
deficit spending which has hurt the dollar so European deficit
spending is bad for the euro."
Standard & Poor's warned that easing the constraints is likely to
lead to bigger deficits, lower credit ratings and higher borrowing
costs for governments.
A Fed rate increase tomorrow would be the seventh straight boost
since June. Policy makers may drop the use of "measured" in an
accompanying statement to describe the pace at which the central
bank will lift borrowing costs, according to Derek Halpenny, a
currency economist in London at Bank of Tokyo Mitsubishi Ltd.
"It's completely about the language the Fed uses tomorrow," said
Halpenny. "There's a fear they will alter their statement to
indicate a greater threat of inflation and that would favor the
dollar."
Forty-three percent of the 63 traders, investors, and strategists
polled from Sydney to New York on March 18 advised buying the dollar
against the euro, up from 29 percent a week earlier. Thirty-eight
percent said sell and the rest recommended holding the U.S.
currency.
The European Central Bank, led by President Jean-Claude Trichet, has
kept its key lending rate at 2 percent since June 2003 in a bid to
spur growth in the euro region.
"We've definitely moved to less dollar-bearish," said Maxime
Tessier, vice president of currency management in Montreal at TAL
Global Asset Management, with about $46 billion in assets. The firm
closed some bets on dollar declines in the past week, including
against the euro, he said.
A Fed target rate above 4 percent this year is "inevitable," Tessier
said. Fed officials over the next month or so will start signaling
to investors the likelihood of more rate increases than currently
anticipated by year-end, and the euro will fall below $1.30 within
two months, he said.
The spread between 10-year Treasury notes and German government
bonds of similar maturity is near the widest since 2000. The gap was
about 80 basis points, up from about 63 at the start of the month
and no difference in September. A basis point is 0.01 percentage
points.
"We're getting closer to the point where yields are giving the
dollar some benefit," said Robert Rennie, a currency strategist in
Sydney at Westpac Banking Corp. "It doesn't make sense to be selling
the dollar ahead of the Fed meeting."
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