Friday, September 21, 2007

They Wouldn't Dump Dollars Would They?


How are foreign creditors going to react?
There are clear signs that foreign central banks are slowing their purchases of U.S. Treasuries and mortgage-backed securities. The Chinese, in particular, are reaching the point where they see no benefit from expanding their portfolio of U.S. Treasuries.
In the end, that doesn’t bode well for the dollar. As if on cue, the dollar index dropped to 78 yesterday -- a 15-year low. The euro has twice broken through the $1.40 mark this week -- a record high.
Gold loves this environment. Following the Fed decision, gold busted through its $720 high of 2006. In fact, at $733 this morning, gold is trading at a 27-year high.
“This move in gold is very different from the spike of May 2006,” says Adrian Ash of bullionvault.com. “Back then, gold moved higher with stocks and bonds. Now stocks and bonds are slipping back while gold attracts a genuine safe-haven bid from private investors and -- more crucially -- from savers.”
Gold is rising against the euro and the pound, too, not just the dollar, stocks and bonds. “Gold is trading within a few euro cents of a 16-month high against the euro,” Adrian writes, “and it has jumped more than 10% against the pound over the last month.”

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