Bianco on Gold: And Now for Something Completely Different....

Jim Bianco noted on Bloomberg television this afternoon that gold has reached new highs in all major currencies this week, with the most recent high in the Swiss franc, for the first time in over thirty years.

The reason for this is a rush from, or a revulsion towards, paper assets. Gold is now the 'anti-paper' currency, particularly in mainland Asia and Europe.

What is ironic is that I told a friend three weeks ago that if gold went to new highs with the dollar while stocks fell, then he should watch out because it would mark a growing revulsion towards paper assets that would mark a sea-change in the world economy, and the beginning of the end for the dollar reserve currency. A long end perhaps, but the endgame nonetheless.

Investors who rush for safety into the dollar will discover that Bernanke is using their confidence rather badly as he continues to expand the money supply and direct liquidity to support the toxic balance sheets of the banks, including now his own.

The move in precious metals so far has been impressive. It is commonplace, or a truism, to say that 'everyone is long gold' and to short it here because it has moved to a new high.

This is a possible trade. But it could turn out badly if this trend continues, and even moreso, if the faith in the dollar becomes wobbly. As Jesse Livermore once said, 'never short a stock simply because it has gone up. '

If the dollar wobbles we will see a move in the metals that will make what has happened in this bull market so far this year look like a bump on the charts.

Overseas Private Investors Sell US Financial Assets

Non-US private investors fled dollar asset in January, while their central banks continued to buy.

"Monthly net TIC flows were negative $148.9 billion. Of this, net foreign private flows were negative $158.1 billion, and net foreign official flows were $9.2 billion."

Foreign central banks continued to purchase Treasuries while shedding agency debt. This is largely in support of currency pegs for industrial policy and homage from client states like Saudi Arabia.


Treasury International Capital (TIC) Data for January

Washington —The U.S. Department of the Treasury today released Treasury International Capital (TIC) data for January 2009. The next release, which will report on data for February 2009, is scheduled for April 15, 2009.

Net foreign purchases of long-term securities were negative $43.0 billion.

Net foreign purchases of long-term U.S. securities were negative $18.8 billion. Of this, net purchases by private foreign investors were negative $10.2 billion, and net purchases by foreign official institutions were negative $8.5 billion.

U.S. residents purchased a net $24.2 billion of long-term foreign securities.
Net foreign acquisition of long-term securities, taking into account adjustments, is estimated to have been negative $60.9 billion.

Foreign holdings of dollar-denominated short-term U.S. securities, including Treasury bills, and other custody liabilities increased $30.9 billion. Foreign holdings of Treasury bills decreased $15.4 billion.

Banks’ own net dollar-denominated liabilities to foreign residents decreased $118.9 billion.

Monthly net TIC flows were negative $148.9 billion. Of this, net foreign private flows were negative $158.1 billion, and net foreign official flows were $9.2 billion.

Complete data is available on the Treasury website at www.treas.gov/tic.