USAGOLD

“President Obama wants to limit the scope of risk-taking by barring banks with federally insured deposits from trading securities for their own accounts and from owning hedge funds and private equity funds. The plan, policy makers said on Friday, would effectively require bank holding companies — which Goldman and Morgan became at the height of the financial crisis — to divest themselves of these lucrative operations.” — New York Times, 1/21/10

One wonders if there’s more to the collective howl that hovers over Manhattan this weekend, like the deadly smoke in Cormac McCarthy’s “The Road,” than simple concern over the loss of “lucrative operations.”

The first, and most obvious, question is:

If organizations like Morgan and Goldman are forced to divest their huge proprietary trading positions, who is big enough to assume them?

- And, if there’s no one to take them on, or available counterparties simply don’t want them, then they will have to be unwound.

- And, If they have to be unwound, systemic risk will once again be in the headlines as disaster moves from one balance sheet to the next: From bank to bank, from bank to hedge fund and from hedge fund to hedge fund and back to the banks again.

- And, in short all the systemic risk that the federal government hoped to bury through its bailouts will resurface. Only this time around, given the national mood, it is unlikely there will be any federal rescue measures.

This opening of “Obama’s Box” might tow disaster in its wake.

From the same New York Times article:

“Allowing Goldman, or other institutions, to abandon their bank charters carries risks. Such a plan could create a two-tier system, where Goldman could pursue business activities different from its bailed-out peers like JPMorgan Chase. Goldman would lose access to the Federal Reserve’s overnight lending program, which provides emergency financing. But investors may still assume that the government would bail out Goldman if it had trouble, elevating the risk of moral hazard.

Simon Johnson, a former chief economist at the International Monetary Fund, said allowing either bank to revert to a securities firm would do little to address the underlying problem. They are so large and interconnected that a collapse would imperil the global financial system, he said. ‘You can call them an investment bank, a hedge fund, or a banana, but they are still too big to fail,’ Mr. Johnson said.”

Read more….

President Obama on Thursday signed the Girl Scout Commemorative Coin Act into law, authorizing the Untied States Mint to strike up to 350,000 silver dollar coins to honor the 100th anniversary of the establishment of the Girl Scouts of the United States of America (GSUSA).

The coins will be minted and sold in 2013, marking the end of Girl Scouts’ yearlong centennial celebration and kicking off a new century of leadership and service to girls.

The bill, H.R. 621, was introduced by Rep. Jack Kingston and easily passed by a voice vote on Oct. 13. Sen. Susan Collins sponsored a companion bill, S. 451. Instead of moving that forward, the Senate simply passed the House version on Oct. 19 by Unanimous Consent.

President Obama signed the bill at 3:15 p.m. ET during a ceremony at the White House that included Connie L. Lindsey, GSUSA National Board Chair, Laurie Westley, Senior Vice President, Public Policy, Advocacy & the Research Institute, and girls from the Girl Scout Council of the Nation’s Capital.

(…)
Read the rest of Girl Scout Commemorative Coin Act is Law (313 words)

Legislation known as the Medal of Honor Commemorative Coin Act of 2009, H.R. 1209, has been approved by Congress and will move quickly — within weeks — for an expected signature from President Obama, which will make it law.

(…)
Read the rest of Medal of Honor Commemorative Coin Act Passes Congress (379 words)

© Darrin Lee Unser for Silver Coins Today, 2009. |
Permalink |
No comment |
Add to
del.icio.us

Post tags: Commemorative Coin Legislation

Touted by itself as the preeminent organization dedicated solely to girls, the Girl Scouts of the USA is about to get a commemorative coin issued in its honor if Congress gets its way.

The Girl Scouts USA Centennial Commemorative Coin Act authorizing the $1 silver coins was passed last week by the U.S. House of Representatives and it received approval this week by the Senate without amendment and by unanimous consent. It is now up to President Obama to sign it into law, which he is expected to do.

(…)
Read the rest of Girl Scouts Commemorative Coin Act Cleared to Become Law (140 words)

© Silver Coins Today for Silver Coins Today, 2009. |
Permalink |
No comment |
Add to
del.icio.us

Post tags: Commemorative Coin Legislation

Legislation seeking to recognize and celebrate the establishment of the Medal of Honor was approved in the U.S Senate Thursday by Unanimous Consent. The bill, H.R. 1209, passed in the U.S. House of Representatives back on May 14, 2009.

Following a procedural clearance step, the Medal of Honor Commemorative Coin Act of 2009 will make its way to President Obama who is expected to sign it into law. That will authorize the United States Mint to strike up to 500,000 $1 silver coins and 100,000 $5 gold coins in proof and uncirculated conditions in 2011.

H.R. 1209, which was introduced by Rep. Christopher Carney, calls for gold and silver coin designs to be "emblematic of the traditions, legacy, and heritage of the Medal of Honor, and the distinguished service of its recipients in the Nation’s history."

(…)
Read the rest of Medal of Honor Commemorative Coin Act Passes Senate (173 words)

Girl Scout Commemorative Silver Dollars are in the works. Legislation to celebrate the Girl Scouts with silver coins passed in the U.S. House of Representatives last Tuesday, and the bill was given a thumbs up in the U.S. Senate on Monday without amendment and by Unanimous Consent. Following a few minor procedural details, the bill will make its way to President Obama for his expected signature and will officially become law.

The Girl Scouts USA Centennial Commemorative Coin Act, or H.R. 621, was introduced on Jan. 21 by Rep. Jack Kingston. (A nearly identical bill, S. 451, was introduced in the Senate by Sen. Susan Collins on Feb. 25.) When H.R. 621 is signed into law, it will authorize the United States Mint to strike up to 350,000 commemorative proof and uncirculated silver dollars to celebrate the 100th anniversary of the founding of the Girl Scouts of the USA.

(…)
Read the rest of Girl Scouts Commemorative Coin Bill Set to Become Law (219 words)

By Pham-Duy Nguyen

Oct. 19 (Bloomberg) — Gold’s rally to a record means
prices are still 53 percent below the 1980 inflation-adjusted
peak.

While gold rose 19 percent this year to $1,072 an ounce on
Oct. 14, consumer prices almost tripled in the past three
decades, eroding the metal’s value. Bullion hasn’t kept pace
with the cost of bread, fuel or medical care. In 1980, gold hit
a then-record $873 an ounce. In today’s dollars, that would be
$2,287, according to the U.S. Labor Department’s inflation
calculator.

Record government debt and interest rates close to zero
percent are pushing gold higher for a ninth straight year, and
options show investors expect the rally to continue. When prices
reached all-time highs, the contract with the most open interest
was the December call to buy the metal at $1,200. The contract
to purchase at $1,500 an ounce was the third biggest.

“Gold is not at any peak,” said Martin Murenbeeld, the
chief economist at Toronto-based DundeeWealth Inc., which
manages $58.5 billion in mutual funds and brokerage accounts.
“The world’s money supply has increased and gold hasn’t kept
pace,” he said. “We’re now in a period where gold is catching
up.”

The U.S. Dollar Index, which measures the currency against
those of six major trading partners, fell on Oct. 15 to the
lowest level in 14 months, and has dropped about 7 percent this
year. President Barack Obama has increased the nation’s
marketable debt 22 percent to $7.01 trillion to revive growth.

Preserving Value

Gold bulls say today’s record borrowing and low interest
rates mean the government will have to accept faster inflation
as the economy recovers. Investors buy bullion to preserve value
during times of turmoil and economic stress.

Financial institutions worldwide have reported credit
losses and writedowns of about $1.62 trillion since the start of
2007, when the credit crisis began. Group of 20 governments have
pledged about $11.9 trillion to ease credit and revive economic
growth, according to the International Monetary Fund.

“Gold is the hedge against currency devaluation,” John
Brynjolfsson, of hedge fund Armored Wolf LLC, said in a
Bloomberg Television interview from Aliso Viejo, California, on
Oct. 7. He predicted bullion will top $2,000.

Banks have raised their gold estimates. On Oct. 9, JPMorgan
Chase & Co. said the metal will average $1,006 an ounce next
year, compared with an earlier projection of $950. Deutsche Bank
AG forecast an average of $1,150, up 32 percent from its
estimate in July. Barclays Capital said Oct. 12 that “prospects
for a run at $1,500 should not be underestimated” next year.

Understated CPI

Gold would need to rise more than sixfold to top the 1980
record, using a more accurate inflation-adjustment, said John
Williams, an economist and the editor of Berkeley, California-
based Shadowstats.com. He said the government has understated
the cost of living over the past two decades with adjustments in
the way it measures the basket of goods and services monitored
by the U.S. consumer price index, or CPI.

Gold futures for December delivery closed Oct. 16 at
$1,051.50 an ounce on the New York Mercantile Exchange’s Comex
division, gaining for a third straight week.

“If the methodologies of measuring inflation in 1980 had
been kept intact, gold would have to hit $7,150 to be the
equivalent of the 1980 record,” Williams said.

The cost of living in the U.S. rose 0.2 percent last month,
the Labor Department said on Oct. 16. Compared with a year
earlier, consumer prices fell 1.3 percent. The CPI will drop 0.5
percent this year, before rising 1.9 percent in 2010, reflected
by the median estimates of 61 economists in a Bloomberg survey.
Annual increases averaged 2.8 percent a year in the past decade.

Purchasing-Power Adjustment

In March 1980, inflation surged to a 14.8 percent annual
rate, two months after gold capped a four-year rally. Adjusted
for the decline in the dollar’s purchasing power since then,
gold’s Oct. 14 record of $1,072 represents the equivalent of
$409 in 1980 dollars, the Labor Department calculator shows.

Since January 1980, the average price of a pound of white
bread has risen almost threefold, from about 50 cents to $1.38
in August, and medical care has surged more than fivefold, Labor
Department figures show. Gasoline and electricity prices have
more than doubled.

Today, the gap between gold’s spot price and its CPI-
adjusted equivalent is the widest ever.

Gold hasn’t been as effective a hedge against inflation as
oil since the 1980s, said Matt Zeman, of LaSalle Futures Group
LLC in Chicago.

Oil Beats Gold

Crude passed its 1981 inflation-adjusted record two years
ago. The cost of imported oil averaged $39 a barrel in February
1981, after Iran cut exports, according to the Energy
Department. That’s $89 in 2007 dollars, the Labor Department
calculator shows. Oil reached a record $147.27 on July 11, 2008,
and closed at $78.53 on Oct. 16 in New York trading.

“If you bought gold in the 1980s, you’re still losing
money today,” said Zeman, a metals trader. Gold prices in New
York languished for two decades after declining from the 1980
record, dropping to a 20-year low of $253.20 on July 20, 1999.

While bulls say gold is cheap, the inflation-adjusted price
is 15 percent above its 30-year average, Bloomberg data show.

The Federal Reserve may limit gains by raising interest
rates before inflation balloons, analysts said. Fed Chairman Ben
S. Bernanke said on Oct. 8 that policy makers will need to raise
interest rates “at some point” to control inflation.

‘Prepared to Tighten’

“When the economic outlook has improved sufficiently, we
will be prepared to tighten,” Bernanke said in remarks prepared
for an Oct. 8 conference in Washington.

Fed moves to cool inflation and the government’s revenue
needs will stop gold, according to Jon Nadler, a senior analyst
for Montreal metals dealer and refiner Kitco Inc.

“These wild calls for several-thousand-dollar gold are
typical of times when gold goes into uncharted territory,”
Nadler said. “The Fed will pull the interest-rate trigger and
the Obama administration will, in addition, pull the tax-hike
trigger before we get into any serious inflation. Once the man
on the street gets in, the gold rally is likely over.”

Gold held in exchange-traded funds climbed to records this
month at Zuercher Kantonalbank and ETF Securities Ltd. Holdings
in the SPDR Gold Trust, the biggest exchange-traded fund backed
by bullion, are up 42 percent this year. Hedge funds and other
large speculators hold their most-bullish position ever in gold
futures. So-called net-long positions, or bets prices will rise,
increased by 6 percent to 253,955 contracts in the week ended
Oct. 13, according to the Commodity Futures Trading Commission.

Gold Producers

The Philadelphia Stock Exchange Gold & Silver Index jumped
43 percent this year, as Phoenix-based Freeport-McMoRan Copper &
Gold Inc. tripled. Toronto-based Barrick Gold Corp., the world’s
largest producer, fell 10 percent. Barrick said Sept. 8 it will
record $5.6 billion in third-quarter costs to eliminate fixed-
price contracts as the company bets gold’s value will climb.

At Jersey, Channel Islands-based GoldMoney.com, which held
$759 million of gold and silver for investors as of Sept. 30,
founder James Turk said bullion can climb eightfold based on the
historical relationship between the metal and the Dow Jones
Industrial Average. The Dow is up 10-fold since January 1980.

Gold and the Dow, which has gained 14 percent this year to
9,995.91, were at about the same level during the Great
Depression and the early 1980s, he said. On Jan. 21, 1980, as
gold futures surged to $873, the Dow slipped to 946.25.

“The dollar is constantly being debased and inflated,”
Turk said. “By 2013, gold is going to be at $8,000 and the Dow
will be at 8,000.”

Gold-Dollar Link

Deutsche Bank said early this month that the dollar will
fall to $1.60 per euro next year, a drop of 7.3 percent from
last week, because of “rising fiscal deficits and loose
monetary policy.”

Gold has moved in the opposite direction of the dollar over
most of the past decade. The metal’s correlation coefficient to
the U.S. Dollar Index is minus 0.8539, Bloomberg data show. A
correlation of minus 1 indicates two assets move inversely to
each other, while a 1 would show they move in tandem. A reading
of zero shows no correlation.

Philip Gotthelf, the president of Equidex Brokerage Group
Inc. in Closter, New Jersey, says he expects gold to trade at
$1,250 by year-end.

“Gold has been pushing higher because it’s no longer just
a hedge against commodity inflation, it’s also a hedge against a
change in world-monetary standards.”

Read more….

What’s happening to the dollar? That’s the question dominating the world’s
financial markets. Last week the US currency fell, on a trade-weighted
basis, to a fresh 14-month low. The dollar’s decline is now gaining momentum.

By Liam Halligan

Published: 7:22PM BST 10 Oct 2009

Many American economists say the greenback is falling because the global
economy is recovering – so investors no longer need the dollar as a “safe
haven”.

That’s nonsense. The reality is that “safe haven” status has shifted
away from the dollar and towards tangible assets that the US government
can’t debauch by printing more of them. That’s why gold just hit a fresh all-time high of well over $1,000 per ounce.
That’s why commodity-backed currencies like the Australian dollar are now
soaring – causing howls of protest from Aussie exporters. Meanwhile, global
investors are quitting the US currency because they’re worried it’s a
sinking ship.

It’s hard to disagree. America is still running a current account deficit
equal to almost 3pc of national income. In a single month over the summer,
the gap between America’s imports and exports widened no less than 16pc.

America’s external imbalance remains sizeable in part because the country is
the world’s biggest oil importer. When crude prices rise, Uncle Sam’s trade
deficit increases, which, in turn, pushes down on the dollar.

As every financial analyst knows, a falling dollar means rising oil as the
black stuff is priced in US currency. But the relationship also operates in
reverse. When oil strengthens, the dollar tends to weaken as America’s trade
deficit suffers. Crude is now more than 50pc above its mid-February low –
ergo, a weaker dollar.

The dollar is also falling because that’s what the White House wants. “It’s
important America continues to have a strong currency,” said US
Treasury Secretary Timothy Geithner last week. “We’ve made clear our
commitment to a strong dollar,” added Larry Summers, the Head of
President Obama’s National Economic Council.

These men insult our intelligence. The US government desperately wants a
weaker dollar – so boosting exports while lowering the value of America’s
massive foreign debt. The currency markets will keep betting against the
greenback as they know the Federal Reserve will do nothing to stop a weaker
dollar coming true. “Benign currency neglect” is the cornerstone
of Obama’s recovery strategy.

The danger is, though, that “the rope slips” and steady decline
turns into nosedive. If the dollar did tip into free fall, US inflation
would soar and interest rates would skyrocket – whatever the Fed now says.
The world’s largest economy would then face “stagflation” – the
nightmare combination of recession and high inflation.

This danger is very real, not least because the rest of the world is seriously
concerned at America’s wildly expansionary fiscal and monetary policy.
That’s the fundamental reason the dollar is falling.

Just over a year ago, America’s monetary base was equal to 6pc of national
income. Now, after a year of money printing, it’s 12pc. The US has expanded
its basic money supply by a staggering 108pc in 12 months. No wonder the
currency markets are alarmed about future US inflation. No wonder there is a
widespread assumption so-called “quantitative easing” – or QE –
will continue, funding yet more bank bailouts and other forms of wasteful
government spending.

On top of all this, we must now add “carry trade” pressures. As this
column pointed out last month, investors are using low Fed rates to take out
inexpensive dollar loans, then converting the money into higher-yielding
currencies. “Carrying” credit in this way is flooding the world
with cheap dollars – pushing the greenback down even more.

There are broader reasons for the dollar’s demise – not least that the sun is
now setting on its reserve currency status, as the world’s commercial centre
of gravity shifts towards the emerging giants of the East. That’s a much
longer-term trend, though. In the here and now, the dollar is tumbling due
to America’s ultra-low interest rates, monetary incontinence and fiscal
irresponsibility.

The decline became so steep last week that central banks in Asia – including
China – spent their own reserves propping up the US currency, so worried
were they about the impact of the falling dollar on their all-important
exports. Future historians will shake their heads in disbelief.

Keep in mind, though, that the arguments pointing to a weaker dollar also
apply to the pound – but even more so. Last week sterling hit a
trade-weighted five-month low. Over the last year, the pound has, well, been
pounded – losing significant ground against the yen and euro, as well as the
ailing dollar.

Like the US, Britain has indulged in grotesque money-printing antics. The two
countries might be dubbed the QE2. But the Bank of England’s printing
presses really have been in overdrive, with the UK’s monetary base now equal
to almost a fifth of GDP, up a head-spinning 169pc in a single year.

Capital Gold Group, gold group, gold, gold prices, gold news, gold coins, gold bullion, gold IRA, IRA
gold

Read more….

By Pham-Duy Nguyen and Nicholas Larkin

Oct. 13 (Bloomberg) — Gold futures rose to a record as the
slumping dollar spurred demand for the precious metal as an
alternative asset.

The metal is on course for a ninth straight annual gain.
This year, gold has gained 20 percent. Today, the price reached
a record $1,069.70 an ounce in New York, surpassing the previous
high on Oct. 8. The dollar has dropped 6.6 percent in 2009
against a basket of six major currencies, touching a 14-month
low.

“There’s lots of concern about the weakness in the dollar,
and this has been driving gold,” said Peter Fertig, the owner
of Quantitative Commodity Research Ltd. in Hainburg, Germany.

Gold futures for December delivery gained $3.50, or 0.3
percent, to $1,061 at 11:05 a.m. on the Comex division of the
New York Mercantile Exchange.

The metal may benefit as central banks worldwide diversify
away from the dollar, analysts said. Nations reporting currency
holdings put 63 percent of the new cash into euros and yen in
April, May and June, Barclays Capital data show. China in April
said it purchased 454 metric tons of gold from 2003 to 2009,
according to data from the producer-funded World Gold Council.

China has the sixth-largest gold holdings, after the U.S.,
Germany, the International Monetary Fund, Italy and France. Only
1.9 percent of China’s foreign-currency reserves are in gold.

“The tremendous perception that the dollar will continue
to weaken is going to drive gold higher,” said Frank McGhee,
the head dealer at Integrated Brokerage Services LLC in Chicago.
“China is nervous and continues to be nervous about the
dollar.”

Record U.S. Debt

President Barack Obama has increased U.S. marketable debt
to a record as he borrows to reignite economic growth. That has
boosted speculation that increased money supply will debase the
currency and spur inflation.

The Federal Reserve has cut its main interest rate almost
to zero and backed asset purchases and credit programs to combat
the recession. Chairman Ben S. Bernanke is leading plans to buy
mortgage-backed securities, federal agency debt and Treasuries.

“The fear that central bank exit strategies will come too
late to prevent inflation is giving support to gold,” Fertig of
Quantitative Commodity Research said.

U.S. consumer prices will increase 1 percent this quarter
and 1.9 percent and 1.8 percent in the following two quarters,
respectively, according to the median estimate of 66 economists
surveyed by Bloomberg.

Crude-oil futures, used by some investors as an inflation
guide, rose today to the highest in seven weeks. The price has
jumped 65 percent this year.

Gold will trade at $1,025 an ounce in the next three
months, up from a previous forecast of $950, Citigroup Inc. said
in a report, citing increased demand and the sliding dollar. The
bank raised its estimate for the coming six to 12 months to
$1,050, from $975.

“There is less obvious support for the current price from
the fundamentals of supply and demand, excluding investment,”
Citigroup said. “Mine supply has recently been sufficient to
meet all fabrication demand. Excess demand for gold must
therefore be supported by investors.”

Read more….

Oct. 12 (Bloomberg) — Central banks flush with record reserves are
increasingly snubbing dollars in favor of euros and yen, further
pressuring the greenback after its biggest two- quarter rout in almost
two decades.

Policy makers boosted foreign currency holdings
by $413 billion last quarter, the most since at least 2003, to $7.3
trillion, according to data compiled by Bloomberg. Nations reporting
currency breakdowns put 63 percent of the new cash into euros and yen
in April, May and June, the latest Barclays Capital data show. That’s
the highest percentage in any quarter with more than an $80 billion
increase.

World leaders are acting on threats to dump the
dollar while the Obama administration shows a willingness to tolerate a
weaker currency in an effort to boost exports and the economy as long
as it doesn’t drive away the nation’s creditors. The diversification
signals that the currency won’t rebound anytime soon after losing 10.3
percent on a trade-weighted basis the past six months, the biggest drop
since 1991.

“Global central banks are getting more serious
about diversification, whereas in the past they used to just talk about
it,” said Steven Englander, a former Federal Reserve researcher who is
now the chief U.S. currency strategist at Barclays in New York. “It
looks like they are really backing away from the dollar.”

Sliding Share

The dollar’s 37 percent share of new reserves fell from about a 63
percent average since 1999. Englander concluded in a report that the
trend “accelerated” in the third quarter. He said in an interview that
“for the next couple of months, the forces are still in place” for
continued diversification.

America’s currency has been under
siege as the Treasury sells a record amount of debt to finance a budget
deficit that totaled $1.4 trillion in fiscal 2009 ended Sept. 30.

Intercontinental Exchange Inc.’s Dollar Index, which tracks the
currency’s performance against the euro, yen, pound, Canadian dollar,
Swiss franc and Swedish krona, fell to 75.77 last week, the lowest
level since August 2008 and down from the high this year of 89.624 on
March 4. The index, at 76.104 today, is within six points of its record
low reached in March 2008.

Foreign companies and officials
are starting to say their economies are getting hurt because of the
dollar’s weakness.

Toyota’s ‘Pain’

Yukitoshi Funo, executive vice president of Toyota City, Japan-based
Toyota Motor Corp., the nation’s biggest automaker, called the yen’s
strength “painful.” Fabrice Bregier, chief operating officer of
Toulouse, France-based Airbus SAS, the world’s largest commercial
planemaker, said on Oct. 8 the euro’s 11 percent rise since April was
“challenging.”

The economies of both Japan and Europe depend
on exports that get more expensive whenever the greenback slumps.
European Central Bank President Jean-Claude Trichet said in Venice on
Oct. 8 that U.S. policy makers’ preference for a strong dollar is
“extremely important in the present circumstances.”

“Major
reserve-currency issuing countries should take into account and balance
the implications of their monetary policies for both their own
economies and the world economy with a view to upholding stability of
international financial markets,” China President Hu Jintao told the
Group of 20 leaders in Pittsburgh on Sept. 25, according to an English
translation of his prepared remarks. China is America’s largest
creditor.

Dollar’s Weighting

Developing countries have likely sold about $30 billion for euros, yen
and other currencies each month since March, according to strategists
at Bank of America-Merrill Lynch.

That helped reduce the
dollar’s weight at central banks that report currency holdings to 62.8
percent as of June 30, the lowest on record, the latest International
Monetary Fund data show. The quarter’s 2.2 percentage point decline was
the biggest since falling 2.5 percentage points to 69.1 percent in the
period ended June 30, 2002.

“The diversification out of the
dollar will accelerate,” said Fabrizio Fiorini, a money manager who
helps oversee $12 billion at Aletti Gestielle SGR SpA in Milan. “People
are buying the euro not because they want that currency, but because
they want to get rid of the dollar. In the long run, the U.S. will not
be the same powerful country that it once was.”

Central
banks’ moves away from the dollar are a temporary trend that will
reverse once the Fed starts raising interest rates from near zero,
according to Christoph Kind, who helps manage $20 billion as head of
asset allocation at Frankfurt Trust in Germany.

‘Flush’ With Dollars

“The world is currently flush with the U.S. dollar, which is available
at no cost,” Kind said. “If there’s a turnaround in U.S. monetary
policy, there will be a change of perception about the dollar as a
reserve currency. The diversification has more to do with reduction of
concentration risks rather than a dim view of the U.S. or its
currency.”

The median forecast in a Bloomberg survey of 54
economists is for the Fed to lift its target rate for overnight loans
between banks to 1.25 percent by the end of 2010. The European Central
Bank will boost its benchmark a half percentage point to 1.5 percent, a
separate poll shows.

America’s economy will grow 2.4 percent
in 2010, compared with 0.95 percent in the euro-zone, and 1 percent in
Japan, median predictions show. Japan is seen keeping its rate at 0.1
percent through 2010.

Central bank diversification is helping
push the relative worth of the euro and the yen above what differences
in interest rates, cost of living and other data indicate they should
be. The euro is 16 percent more expensive than its fair value of $1.22,
according to economic models used by Credit Suisse Group AG. Morgan
Stanley says the yen is 10 percent overvalued.

Reminders of 1995

Sentiment toward the dollar reminds John Taylor, chairman of New
York-based FX Concepts Inc., the world’s largest currency hedge fund,
of the mid-1990s. That’s when the greenback tumbled to a post-World War
II low of 79.75 against the yen on April 19, 1995, on concern that the
Fed wasn’t raising rates fast enough to contain inflation. Like now,
speculation about central bank diversification and the demise of the
dollar’s primacy rose.

The currency then gained 26 percent
versus the yen and 25 percent against the deutsche mark in the
following two years as technology innovation increased U.S.
productivity and attracted foreign capital.

“People didn’t
like the dollar in 1995,” said Taylor, whose firm has $9 billion under
management. “That was very stupid and turned out to be wrong. Now, we
are getting to the point that people’s attitude toward the dollar
becomes ridiculously negative.”

Dollar Forecasts

The median estimate of more than 40 economists and strategists is for
the dollar to end the year little changed at $1.47 per euro, and
appreciate to 92 yen, from 89.97 today.

Englander at
London-based Barclays, the world’s third- largest foreign-exchange
trader, predicts the U.S. currency will weaken 3.3 percent against the
euro to $1.52 in three months. He advised in March, when the dollar
peaked this year, to sell the currency. Standard Chartered, the most
accurate dollar-euro forecaster in Bloomberg surveys for the six
quarters that ended June 30, sees the greenback declining to $1.55 by
year-end.

The dollar’s reduced share of new reserves is also
a reflection of U.S. assets’ lagging performance as the country
struggles to recover from the worst recession since World War II.

Lagging Behind

Since Jan. 1, 61 of 82 country equity indexes tracked by Bloomberg have
outperformed the Standard & Poor’s 500 Index of U.S. stocks, which
has gained 18.6 percent. That compares with 70.6 percent for Brazil’s
Bovespa Stock Index and 49.4 percent for Hong Kong’s Hang Seng Index.

Treasuries have lost 2.4 percent, after reinvested interest, versus a
return of 27.4 percent in emerging economies’ dollar- denominated
bonds, Merrill Lynch & Co. indexes show.

The growth of
global reserves is accelerating, with Taiwan’s and South Korea’s, the
fifth- and sixth-largest in the world, rising 2.1 percent to $332.2
billion and 3.6 percent to $254.3 billion in September, the fastest
since May. The four biggest pools of reserves are held by China, Japan,
Russia and India.

China, which controlled $2.1 trillion in
foreign reserves as of June 30 and owns $800 billion of U.S. debt, is
among the countries that don’t report allocations.

“Unless
you think China does things significantly differently from others,” the
anti-dollar trend is unmistakable, Englander said.

Follow the Money

Englander’s conclusions are based on IMF data from central banks that
report their currency allocations, which account for 63 percent of
total global reserves. Barclays adjusted the IMF data for changes in
exchange rates after the reserves were amassed to get an accurate
snapshot of allocations at the time they were acquired.

Investors can make money by following central banks’ moves, according
to Barclays, which created a trading model that flashes signals to buy
or sell the dollar based on global reserve shifts and other variables.
Each trade triggered by the system has average returns of more than 1
percent.

Bill Gross, who runs the $186 billion Pimco Total
Return Fund, the world’s largest bond fund, said in June that dollar
investors should diversify before central banks do the same on concern
that the U.S.’s budget deficit will deepen.

“The world is
changing, and the dollar is losing its status,” said Aletti Gestielle’s
Fiorini. “If you have a 5- year or 10-year view about the dollar, it
should be for a weaker currency.”

Read more….