Baseball91's Weblog

September 29, 2009

Performance Enhancement After Affects

Tsunami warnings. Times of panic. When the water recedes.

Money-market funds are no longer insured by the US Treasury. When the Reserve Primary Fund share price fell last September a bit below a dollar, the U. S. Treasury stepped in offering protection against losses, to prevent a “run” by money-market depositors. Commercial banks paid premiums for federal deposit insurance for such protection to the federal government which they are required to have. That money-market fund protection continued in the panicked climate of the last 12 months but came to a stop Friday.

On September 3, 2009, Chris Oliver wrote a piece about the biggest movement in gold which might have gone little noticed by currency traders. The Hong Kong Monetary Authority, which functions as the territory’s unofficial central bank, will transfer its gold reserves stored in other vaults to the depository later this year, the Hong Kong government said in a statement. Local newspaper reports said the Hong Kong Mercantile Exchange had signed an agreement to use the depository for its physical settlement and storage needs. According to its International Reserves and Foreign Currency Liquidity statement, the Hong Kong Monetary Authority reported $63 million in physical gold reserves as of July 31, 2009, thought to be stored in London.

A newly built 3,660-square-foot depository, located at the city’s main Chek Lap Kok Airport,will serve as a “storage facility for local and overseas government institutions. The facility would support Hong Kong’s emergence as a Swiss-style trading hub for bullion and would lessen London’s status as a key settlement-and-storage center, Chris Oliver wrote. Marketing efforts will be launched to convince Asian central banks to transfer their gold reserves to the Hong Kong facility, according to Raymond Lai, finance director with the Hong Kong Airport Authority. Managing director at Scotia Capital, Sunil Kashyap, said the facility was the first with official government backing in the region. Martin Hennecke, a financial advisor with the Hong Kong-based Tyche Group, said, “Central banks are increasingly aware of the importance of having gold reserves at time of financial crisis and having it easily available at their own disposal,” and this could be appealing to regional central banks unnerved after watching the global financial system teeter on verge of implosion last year.

Management firm Value Partners planned to launch an exchange-traded gold fund that will use Hong Kong instead of London as a repository for the gold backing the fund, a local newspaper reported. Traders said the new depository facility could foster new financial products, such as exchange-traded funds based on precious metals. “Having a central government-sponsored vault would create a situation where you could conceivably look at Hong Kong as being a hub, where metal could be traded for the region,” said Sunil Kashyap.

China has always shown a respect for the American dollar which comes from the history of the dollar. Now however, a larger interest is growing in China not to fall prey to wide currency fluctuations. Exports which have until now needed a reasonable balance in foreign accounts, a major share made up of the U S dollar. Paul Volcker spoke last night on the Charlie Rose show of the need in China to avoid social tension that is directly linked to currency.

The moves by the Fed last October are now starting to look a lot like a patient weened off steroids. It was not just the American electorate looking at how all the newly minted money was going to be paid for. It was either through tax increases or budget cuts. If the dollar was going to maintain any kind of value.

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