Jim Rogers Shifts Assets Out of Dollar to Buy Chinese Currency

Jim Rogers Shifts Assets Out of Dollar to Buy Chinese Currency

By Marcel van de Hoef and Danielle Rossingh

Oct. 24 (Bloomberg) -- Jim Rogers, chairman of Beeland Interests Inc., said he is shifting all his assets out of the dollar and buying Chinese yuan because the Federal Reserve has eroded the value of the U.S. currency.

``I'm in the process of -- I hope in the next few months -- getting all of my assets out of U.S. dollars,'' said Rogers, 65, who correctly predicted the commodities rally in 1999. ``I'm that pessimistic about what's happening in the U.S.''

Rogers, delivering a presentation late yesterday at an investors' meeting organized by ABN Amro Markets in Amsterdam, said he expects the Chinese currency to quadruple in the next decade and that he is holding on to commodities such as platinum, gold, silver and palladium.

The dollar has dropped against all the 16 most actively traded currencies except the Mexican peso this year as slowing growth and the first interest-rate reduction since 2003 last month dimmed the allure of dollar-denominated assets.

Since the Fed lowered U.S. interest rates on Sept. 18, the first cut in four years, the dollar has fallen 2.8 percent against the euro and touched a record low yesterday. Gold rose to a 27-year high and platinum jumped to a record.

``It's the official policy of the central bank and the U.S. to debase the currency,'' said Rogers, a former partner of George Soros.

``The U.S. dollar is and has been the world's reserve currency, the world's medium of exchange,'' he said. ``That's in the process of changing. The pound sterling, which used to be the world's reserve currency, lost 80 percent of its value, top to bottom, as it went through the whole period of losing its status as the world's reserve currency.''

China

The Chinese currency, known as the renminbi, or yuan, is ``the best currency to buy right now,'' Rogers said. ``I don't see how one can really lose on the renminbi in the next decade or so. It's gotta go. It's gotta triple. It's gotta quadruple.''

China, growing faster than any other major economy, is ``going to be the most important country in the 21st century,'' he said. China's gross domestic product expanded 11.9 percent in the second quarter, and analysts surveyed by Bloomberg estimate the economy grew by 11.5 percent in the three months to Sept. 30.

Rogers also is buying Swiss francs and Japanese yen, which he said have been ``pounded down'' because of the so-called carry trades.

Unwinding Carry Trades

In the carry trade, investors borrow in countries with low interest rates, such as Japan, and invest the proceeds where rates are higher. Japan's benchmark overnight lending rate is 0.5 percent, compared with 6.5 percent in Australia and 8.25 percent in New Zealand.

The carry trades in yen and francs will ``unwind someday,'' which will send the currencies ``straight up,'' Rogers said. ``I'm buying the yen.''

The bull markets in bonds and stocks are ``over,'' he said. ``Bonds will be a terrible place to be for many years and will in fact be going down for many years.''

Rogers said he remains bullish on commodities because ``that's where the big fortunes are going to be made in the world in the next five, or 10 or 15 years. The current bull market is going to last until sometime between 2014 and 2022.''

Commodity prices have surged as demand for raw materials, especially from China, rose faster than producers were able to increase output. Agricultural prices have led recent gains, including a record high for wheat last month and a three-year high in soybeans.

``The number of hectares devoted to wheat farming has been declining for 30 years, the inventory levels of food are at the lowest level since 1972,'' Rogers said. ``Suppose we start having droughts again. God knows how high the price of agriculture is going to go, so that's where I'm putting more of my money now than in other things.''

He added, ``I think I'm going to make more money in agriculture than I make in precious metals.''

Platinum, gold, silver and palladium will ``be much, much higher during the course of the bull market,'' he said.

To contact the reporters on this story: Marcel van de Hoef in Amsterdam at mvandehoef@bloomberg.net ; Danielle Rossingh in London at drossingh@bloomberg.net .

Last Updated: October 23, 2007 20:23 EDT

http://www.bloomberg.com/apps/news?pid=20601087&sid=amQBwDBSDvBE&refer=home

SIVs, Water Rights Issues, and Bank Failures

Even 'safe' funds play with fire

http://money.cnn.com/2007/10/19/magazines/fortune/eavis_boa.fortune/index.htm?postversion=2007101917

One of the things SIVs issue is asset-backed commercial paper, which is basically short-term debt that is collateralized with assets, although those assets may just be other types of debt.)

Beware banks' bragging on earnings

J.P. Morgan Chase and Goldman Sachs have used their superior results this quarter to try and steal business from rivals. But are they really as strong as they look?

http://money.cnn.com/2007/10/17/news/companies/wall.st.fortune/index.htm

The Future Is Drying Up

http://www.nytimes.com/2007/10/21/magazine/21water-t.html?_r=2&oref=slogin&pagewanted=print

This is an old prophecy, dating back more than a century to one of the original American explorers of the West, John Wesley Powell, who doubted the territory could support large populations and intense development. (Powell presciently argued that river basins, not arbitrary mapmakers, should determine the boundaries of the Western states, in order to avoid inevitable conflicts over water.) An earlier explorer, J. C. Ives, visited the present location of Hoover Dam, between Arizona and Nevada, in 1857. The desiccated landscape was "valueless," Ives reported. "There is nothing there to do but leave."

RESCUE EFFORTS TO SAVE BANKS REVEALS TOTAL BANKRUPTCY OF FINANCIAL POLICIES

If these people had examined critically, even for five minutes, the current state of affairs, it would have been apparent to them, that Bernanke's sell out to Wall Street was a stop gap measure to calm the markets and create a state of illusion. But it did not work for the simple reason that one cannot simply revive, on a permanent basis, a hopelessly terminally ill patient, when all its organs are failing rapidly, save the ventilator maintaining the last few breaths.

Japan ceases to use US dollar as reserve currency

Iran and Japan have taken another step in making the dollar's dominance a thing of the past.

Japanese oil refiners Cosmo Oil Co. and Japan Energy Corp. have started paying for Iranian crude oil in yen instead of dollars, announced company spokesmen on October 9. Both companies are following in the footsteps of Nippon Oil Corp.-Japan's largest oil refiner-which made the same announcement in September.

How significant is it that more and more nations are ceasing to use the dollar as a reserve currency?

Since the 1944 Bretton Woods Agreement, the US dollar has been the world's primary reserve currency. This has been especially true regarding the crude oil trade, in which the majority of nations pay for crude oil in dollars. The resulting massive demand for dollars has allowed the United States to accumulate trade deficits and fiscal debts without experiencing the negative economic impacts that such imbalances normally cause.

This past July, the National Iranian Oil Company (NIOC) general manager of crude oil marketing and exports, Ali Arshi, sent a letter to Japanese oil refineries requesting that all future crude oil shipments be paid for in yen. Three major Japanese oil refiners have already complied. Will other Asian oil refiners follow suit and move away from the US dollar?
As the largest overseas holder of US treasuries, Japan is a key supporter of the US dollar. Yet Iran is the third-largest supplier of Japanese oil. As one Tokyo investment securities analyst said, "What else can Japan do but accept the [Iranian] request, once the oil producer sent its wish?"

The switch to yen should have little negative impact on the Japanese economy. As the purchasing power of the dollar has decreased, the price of oil has skyrocketed to $80 a barrel. Any increase in value of the yen, due to increased oil-yen demand, will only make oil imports less expensive for a nation that is highly dependent on oil imports.

The Iranians are also optimistic about the switch. Hojjatollah Ghanimifard, the International Affairs Director of NIOC, stated that "With the arrangements we've made with our Asian customers, hopefully by the end of October we will have around 80 percent of our export revenues in currencies other than the dollar."

Already, approximately 65 percent of Iran's crude oil exports are based on the euro and another 20 percent on the yen. Iran is casting off the dollar and doing all it can to persuade the oil refineries of Japan to do the same.

Central banks in South Korea, China, Taiwan, Russia, Syria and Italy have announced plans to reduce their dollar holdings. As nations and corporations turn their back on the greenback, the decreasing demand for America's currency may cause its already weakening value to plunge to new depths.

Source: Fars News Agency

SIVs remain for round 2 credit crunch threat

Several of the world's biggest banks are in talks to put up about $75 billion in a backup fund that could be used to buy risky mortgage securities and other assets, a move designed to ease pressure on a crucial part of the credit markets that threatens the broader economy... http://www.nytimes.com/2007/10/14/business/14bank.html?ei=5065&en=6489772aacb69342&ex=1192939200&partner=MYWAY&pagewanted=print

Structured investment vehicles (SIVs) are investment companies that buy highly rated debt securities and fund themselves by issuing senior debt and capital. In recent years they have developed from a niche area into a large component of the structured finance market in the UK and other jurisdictions.http://www.iflr.com/?Page=17&ISS=17633&SID=524642

A structured investment vehicle (SIV) is an evergreen credit arbitrage fund, similar to a CDO or Conduit. They are usually from around $1bn to $30bn in size and invest in a range of asset-backed securities, as well as some financial corporate bonds. SIV is to make profits from the difference between short term borrowing rate and long term returns. The risk that arises from the transaction is mainly twofold. First of all, the solvency of the SIV may be at risk if the value of investments falls below the equity part. Secondly, there is a liquidity risk, as the SIV borrows short term and invests long term, that is the debt comes due before the asset falls due. Unless the borrower can refinance short-term at favorable rates, he may be forced to sell the asset into a depressed market. http://en.wikipedia.org/wiki/Structured_investment_vehicle

Notable SIV managers

Most SIVs are run or sponsored by banks, however a number are managed independently.

Bank Sponsors

• HSH Nordbank manages Carrera Capital Finance
  
• Bank of Montreal manages Parkland Finance and Links Finance
  
• Citigroup manage a number of SIVs including Zela Finance, Beta Finance, Sedna Finance and Dorada Finance
  
• Dresdner Kleinwort manages K2 Corporation
  
• HSBC manages Cullinan Finance
  
• Societe Generale manages Premier Asset Collateralized Entity (PACE)
  
• Standard Chartered Bank manages Whistlejacket Capital and White Pine Corp
  
• WestLB manages Harrier Finance
  

Independents

• Brightwater Capital Management manages Kestrel Funding
  
• Cheyne Capital Management managed Cheyne Finance
  
• Eiger Capital Limited manages Orion Finance
  
• Stanfield Global Strategies manages Stanfield Victoria
  

Links

http://www.risk.net/public/showPage.html?page=328506

http://www2.standardandpoors.com/portal/site/sp/en/us/page.article_print/2,1,1,0,1031342466642.html

 

 

EUR/CHF Short

 

Sell 1 lot EUR/CHF and add to the position as the trade enters profit. EUR/CHF is unsustainable at this prices, due to:

• CHF will raise rates EUR will lower
  
• EUR officials are pressured to drop EURO, claiming fears of hurt export markets
  
• Nothing fundamentally better in Europe than Switzerland
  
• Europe more prone to instability, more event risk in Eurozone vs. Suissezone
  

This trade is a long-term trade, use tight stops and re-enter if risk cannot be afforded. Otherwise just hold onto your shorts.

ICAP Bets on Currency Market

ICAP Bets on Currency Market

By KATIE MARTIN
October 11, 2007; Page C3

LONDON -- The global currency market faces a shakeout after yesterday's agreement by interdealer broker ICAP PLC to buy independent foreign-exchange-processing firm Traiana for $238 million.

The union propels New York-based Traiana into the cadre of big-hitting players in the $3.2 trillion-a-day currency markets, enabling it to challenge the central bank-supported monopoly CLS Bank, which ensures each side of currency trades gets paid.

CLS is the only service provider in this area, although banks settle between themselves about 50% of deals.

Traiana's foreign-exchange business revolves around smoothing post-trade flows for only certain types of trades. But co-founder Michael Laven said in an interview that he is ready to "flip the switch" to package together all types of currency deals, potentially slashing the flow to volume-hungry CLS and setting dealing banks on a collision course with central banks.

London-listed ICAP's chunky price tag for Traiana, which is expected to generate just $15 million in revenue in the year ending January, is a sign that it sees the firm expanding its capabilities.

"ICAP is making an interesting bet on the future of the marketplace as much as on Traiana's business today," said Justyn Trenner, principal at London-based ClientKnowledge, which advises banks on strategies in foreign exchange.

A person familiar with discussions on CLS's board said the move is "a big thing" for CLS. "The implications are clear," the person said, adding that the acquisition is likely to be high on the agenda at CLS's next board meeting at the end of this month in Geneva.

CLS processes and charges a fee for each trade that is submitted to it individually. That model made sense when it was set up in 2002, but since then, the amounts traded in the global foreign-exchange markets have boomed, and the number of deals has exploded.

The world's central banks have indicated through the Bank for International Settlements that they want currency-dealing firms to use the system, dubbing the use of other settlement methods as "backsliding" into risky practices.

CLS's board -- made up of representatives of foreign-exchange banks -- has made it clear it doesn't intend to change at this point, because a shift to accepting batches of trades would be economically "disastrous" for the system's smaller users, said the person familiar with CLS's board discussions.

CLS declined to comment.

Some bigger banks are considering and even testing ways to dodge CLS's processes to ease the costs and the data overload, despite their assurances to CLS that they support it.

http://www.icap.com/

http://www.traiana.com/

Record Dow in uncertain economy

STOCKS ROCKED: DOW HITS NEW RECORD...

PAPER: Corporate America racked by uncertainty; Executives unable to make strategic choices...

Qatar Minister Says Oil Prices Should Top $100...

Long NZD/GBP AUD/GBP

Hot money deposits in Britain have ballooned fourfold in a decade to £4,000bn. "What we have is an enormous liability. People have been very happy to park their money in Britain because of the high interest-rate culture and the country's reputation for sound management, but if you start to unpick that, it can go very fast. These investors are fickle," he said.

http://www.telegraph.co.uk/money/main.jhtml?xml=/money/2007/10/05/cnhsbc105.xml

If $4 Trillion Pounds leaves GBP where will the money flow? Look for commodity currencies, possibly CAD in addition to NZD and AUD, to increase against GBP.

With 4 trillion pounds leaving GBP, where will the money flow? Look for commodity crosses and interest bearing crosses, NZD AUD being top 2.

Buy NZD/GBP , AUD/GBP

The above is a daily chart of NZD/GBP – has been up already, but with $4 Trillion pound floating around looking for a new home upside pressure will persist.

• elite trading team
  

 

US – British Banking Crisis

HSBC warns of hot money exodus from Britain under 'siege'

On October 4, 2007, Miami Valley Bank, Lakeview, Ohio

Failed Bank List

Inflation, Banking, and Dollar Crises

Washington Mutual 3Q Earnings to Tumble

Washington Mutual Inc. said Friday that the weak housing market and the recent mortgage crunch will lead to a 75 percent drop in its third-quarter net income, making it the latest financial institution to warn investors it took a major hit over the summer.

Dollar falls to 31 year low against Canadian Dollar

Bank Closing Information for Miami Valley Bank, Lakeview, Ohio

On October 4, 2007, Miami Valley Bank, Lakeview, Ohio was closed by the Ohio Department of Commerce, Division of Financial Institutions and the Federal Deposit Insurance Corporation (FDIC) was named Receiver. No advance notice is given to the public when a financial institution is closed.

An Analysis of the Presidents Who Are Responsible for the Borrowing

Dollar's double blow from Vietnam and Qatar

Vietnam is planning to cut its purchases of US Treasuries and other dollar bonds, raising fears that Asian central banks with control over two thirds of the world's foreign reserves may soon join the flight from US assets.

Vietnam, which has mid-sized reserves of $40bn, is seen as weather vane for the bigger Asian powers

Together they hold $3,575bn of foreign reserves, over 65pc of the world's total. China leads with $1,340bn, but South Korea, Taiwan, Singapore, and even Thailand all built up massive holdings.

A potent inflationary cocktail

Finally, the Federal Reserve showed its true inflationary colors, and Total Fed Credit went up by $6.6 billion last week. The significance of this is that when you take another $6.6 billion in bank credit and multiply it by the current fractional-reserve multiplier (infinity), this calculates out to (according to my rough calculations) exactly 6.6 jillion gazillion umpty-ump quintillion dollars that can be created by the banks, which is just about enough money to bail out everybody in the Whole Freaking World (WFW), which (according to the bizarre current economic theory and practice) is the new purpose of a central bank; create a bubble by creating too much money and credit (which finances the bubble) and then bail everybody out of the ensuing bust by creating another bubble by creating too much money and credit again and again!

GREENSPAN SAYS HE KNEW ABOUT ABUSES IN SUBPRIME LENDING BUT FAILED TO FORSEE THEIR PARALYZING MARKET EFFECTS UNTIL LATE 2005

GREENSPAN SAYS HE KNEW ABOUT ABUSES IN SUBPRIME LENDING BUT FAILED TO FORSEE THEIR PARALYZING MARKET EFFECTS UNTIL LATE 2005
Thu Sept 13 2007 12:30:11 ET

Former Federal Reserve Chairman Alan Greenspan admits he "didn't really get it" that the subprime lending trend was significant enough to hurt the economy until very late 2005, but still defends his lowering of interest rates from 2001 until 2004 that critics say caused the crisis in the first place. Greenspan, who led the U.S. Federal Reserve Bank through 18 years and four presidents, speaks to Lesley Stahl in his first major interview, to be broadcast on 60 MINUTES Sunday, Sept. 16 (7:00-8:00 PM, ET/PT) on the CBS Television Network.

Greenspan says he knew about the questionable subprime lending tactics that gave loans to homebuyers and investors with low adjustable interest rates that could rise precipitously, but not the severe economic consequences they posed. "While I was aware a lot of these practices were going on, I had no notion of how significant they had become until very late," he tells Stahl. "I really didn't get it until very late in 2005 and 2006."

Even though one of the Federal Reserve governors raised a red flag on those lending practices, Greenspan says there was little he could do. "Well, it was nothing to look into particularly because we knew there was a number of such practices going on, but it's very difficult for banking regulators to deal with that," says Greenspan.

Several of Greenspan's former Federal Reserve governors have since said that Greenspan's policy of lowering interest rates for three consecutive years early in the decade was wrong because it opened the door for the subprime lenders. They think he kept rates too low for too long. "They are mistaken," Greenspan tells Stahl. "It was our job to unfreeze the American banking system if we wanted the economy to function. This required that we keep rates modestly low," he says.

Some believe today's market slide -- U.S. stocks have lost significant ground over the past few months -- could have been slowed had the current Federal Reserve Chairman Ben Bernanke lowered interest rates like Greenspan did early in the decade. Would he act as dramatically and quickly now as he did then if he were the current chairman as some believe? "I'm not sure that's true," says Greenspan. "We were dealing in an environment back there where inflation was easing. We could have acted without the fear of stoking inflationary pressures. You can't do that anymore... I'm not certain I would have done anything different [if he was the chairman today]," he tells Stahl. "I think [Bernanke] is doing an excellent job."

Historic Highs for the EURO

Oil Hits $80 a Barrel for First Time...


DOLLAR DECLINES TO RECORD LOW AGAINST THE EURO...

http://www.bloomberg.com/apps/news?pid=20601009&sid=a8HmfchzkP2Q&refer=bond ....Dollar May Fall as $700 Billion of Debt Matures

Senate panel okays $850 billion debt increase

The Senate Finance Committee on Wednesday approved an $850 billion increase in U.S. borrowing authority to $9.815 trillion in order to avoid a default as the government nears its credit limit of $8.965 trillion.

The committee approved the bill on a voice vote and it clears the way for the full Senate to take action most likely by early October. As of last Friday, the federal debt stood at $8.923 trillion and Treasury Secretary Henry Paulson has been urging Congress to act quickly to avoid unnerving financial markets that are already jittery over rising mortgage foreclosures.

It will be the fifth increase in the U.S. credit limit since President George W. Bush took office in 2001 when the U.S. debt stood at $5.6 trillion.

Mortgage Lender's Bankruptcy May Threaten Thousands of Homeowners -

Thousands of homeowners face an "imminent risk" of losing their homes because of clashes between American Home Mortgage Investment Corp. and its former financial backers, according to Freddie Mac, a government-chartered housing financier.

In documents filed with the U.S. Bankruptcy Court in Wilmington, Del., Freddie Mac said it seized $7 million that homeowners sent to American Home to cover principal and interest payments, property taxes and insurance just before the company's Aug. 6 collapse. American Home quit making payments to tax authorities and insurance companies Aug. 24.

Freddie Mac said 4,547 loans valued at nearly $797 million are at stake. It said it doesn't have the loan files necessary to pay insurance premiums and property taxes on them, however.

Fed Liquefaction Pushes August M3 Growth Towards 14%

Fed Liquefaction Pushes August M3 Growth Towards 14%

This afternoon's money supply release showed seasonally-adjusted M2 for the week-ended August 27th up by $64.9 billion to $7.400 trillion. M2 now has risen by $111.1 billion for the last two weeks, rising at an annualized fortnight growth rate of 48.2%.

Depending on the large time deposit numbers due for release on Friday (tomorrow) afternoon, annual M3 growth for August could jump to 14.0%, up from July's 13.0%, and up from my early August estimate of 13.6% made last week.

Despite the Fed coming close to its formal 5.25% fed funds target in the last couple of days, the liquidity crisis continues, and the financial markets remain extremely unstable and dangerous. Once again, watch the dollar!

Additional detail will follow this weekend.

Renaissance raising new fund to trade futures

Renaissance raising new fund to trade futures
Wed Sep 5, 2007 11:31 AM ET

NEW YORK, Sept 5 (Reuters) - Renaissance Technologies Corp. is raising its third quantitative hedge fund, this one specializing in trading futures and designed to handle up to $50 billion, a source familiar with matter said.

Renaissance, which is managed by mathematics professor-turned-financier James Simons, recently began sending out offering documents for the fund, the source said.

Long Island, New York-based Renaissance, which industry publication Alpha Magazine listed as the world's sixth-largest hedge fund group as of May 2007, continues to raise money for its second fund, the Renaissance Institutional Equities Fund (RIEF), which is now over $26 billion.

Its first fund, Medallion, which has about $6 billion, has been one of the most successful funds in the hedge fund world, but is closed to new investors.

Renaissance declined to comment. Private investment firms like hedge funds are barred by regulators from discussing fundraisings in the media on the view that this may entice ordinary people to invest in what are considered risky vehicles for sophisticated investors. News of the fundraising was reported by the Financial Times on Wednesday.

The fundraising comes at a time when many "quant" funds, which employ rapid-fire trading methods using computer driven models, took big hits during the market gyrations of the last month in particular.

Now some have recovered at least some lost territory as they reconfigured their models. The RIEF fund, which was down almost 9 percent by mid-August, bounced back and is now up about a half percent for August, the source said. Final figures aren't in yet.

It is all but clear whether investors will pony up $50 billion for the new fund, which would make it by far the world's biggest hedge fund.

In its offering documents, Renaissance said its RIEF fund was designed to handle up to $100 billion, but the fund is so far nowhere near that size and it is not clear whether it ever will be.

Is China quietly dumping US Treasuries?

Is China quietly dumping US Treasuries?
By Ambrose Evans-Pritchard

Last Updated: 6:55pm BST 05/09/2007

A sharp drop in foreign holdings of US Treasury bonds over the last five weeks has raised concerns that China is quietly withdrawing its funds from the United States, leaving the dollar increasingly vulnerable.

· China threatens `nuclear option' of dollar sales

Data released by the New York Federal Reserve shows that foreign central banks have cut their stash of US Treasuries by $48bn since late July, with falls of $32bn in the last two weeks alone.

"This comes as a big surprise and it is definitely worrying," said Hans Redeker, currency chief at BNP Paribas.

"We won't know if China is behind this until the Treasury releases its TIC data in November, but what it does show is that world central banks are in a hurry to get out of the US. They don't seem to be switching into other currencies, so it is possible they are moving into gold instead. Gold is now gaining momentum across all currencies and has broken through resistance at 500 euros," he said.

While the greenback has been resilient over recent weeks - even regaining something of a 'safe-haven' role as banks scrambled to buy the currency to cover dollar debts - most experts believe that America's $850bn current account deficit will eventually cause the dollar to resume its relentless slide.

David Powell, an economist at IDEAglobal in New York, pointed the finger at Beijing as the main suspect in the sudden bond flight this summer.

In a client note entitled "Has China started to dump US Treasuries?", he said the sales appear to coincide with early moves by Beijing to launch its new $300bn sovereign wealth fund.

The scheme is part of the government's plan to diversify it $1,340bn reserves from bonds (mostly in the US) to a broader portfolio of investments and a better yield.

If so, the switch comes at a very delicate time, just as tempers flair on both sides of the Pacific over China's policy of holding down yuan by currency intervention. A bill in Congress calls for punitive tariff sanctions of 27.5pc against Chinese imports, and there has been a growing outcry over contaminated pet food and lead-tainted toys.

Two top advisers to the Chinese government gave strong hints in August that Beijing should use its estimated $900bn holdings of US Treasuries and agency bonds as a "bargaining chip", words taken as an implicit threat to trigger as US bond crash if provoked.

The Chinese government has since put out an official statement clarifying that it has no intention in taking such an irresponsible step, which would in any case backfire by devaluing China's remaining holding.

Mr Powell said the switch out of Treasuires was a purely commercial decision. "If if turns out that the Chinese are behind this, it is merely an attempt to increase returns on investment. It has nothing to do with settling protectionist scores," he said.

Any evidence that China was pulling out would risk setting off an unstoppable stampede, which is why such a policy would never be announced. It holds the world's biggest pool of resrves, followed by Japan.

Robin Bhar, a metals analyst at UBS, said there was little evidence yet that Asian central banks were switching heavily into gold. Most of the recent buying of gold has been on the COMEX futures markets, the playground of hedge funds.

Central banks tend to buy their bullion in London at the AM and PM fixings, leaving a footprint that is visible to experts. They seem to have been largely absent from the market so far.

http://www.telegraph.co.uk/money/main.jhtml;jsessionid=OFUSXC05QVVI1QFIQMFSFGGAVCBQ0IV0?xml=/money/2007/09/05/bcnchina105.xml