The People�s Bank of China purchases 50bn worth of SDRs (Special Drawing Rights) from the IMF (International Monetary Fund). You can find the press release on the IMF webpage (news section). Sorry, think I am not allowed to posts liks here
The SDRs are basically a currency basket of USD, EUR, GBP and JPY. China is the largest foreign holder of US Treasury Bonds. Chinas foreign currency holding is estimated at +2 trillion and half of that is held in U.S.-government-backed debt.
It seems to me that China wants diversify their foreign currency reserves to reduce the risk of de-valuation of the USD proportion. The exessive printing of money in the US and a record borrowing of expected 2.5 trillion this year could lead to a devaluation of the USD in the long term. The US interest payments alone go into the 100s of billion US$ per year.
China expressed their worries about the safety of their USD holdings multiple times this year, i.e. in March when Chinese Premier Wen Jinbao said: “We have lent a huge amount of money to the U.S. Of course we are concerned about the safety of our assets … To be honest, I am definitely a little worried.”
Since yesterday 8:00 EST we are witnessing a titanic struggle between the Bullion Banks who are trying desperately to keep Gold under control and the longs who are trying to push Gold above $1000/oz and beyond.
This is what it looks like from a TA point of view…
A move above $1032 could see it go sharply higher, as that would be THE BIG, BIGGY breakout.
As a response the USDX will break down. There is no question that the accumelated shorts will send the USD to hell. Meaning to the USDX all time low of 70.79.
The minute Gold breaks free the AUDUSD & EURUSD pair will mirror that move UP in Gold because of it’s correlation.
The other three majors will follow with the USD weakening. It is the horror szenario for the US and the FED which needs to be avoided at all costs.
The trade opportunities for us is to short where the USD is the base currency and go long where the USD is the quote Currency.
