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The Daily Reckoning

Gold rises as US interest rates stay down

Gold rises, along with the euro and Australian dollar, after the S&P downgraded its outlook on the US. Gold rises above $1,500 and silver is trading above $44.

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As I look at the currency screens, all the currencies that should be in green are green, and all the currencies that should be in red are in red, except for one… The Japanese yen (JPY), which had been in rally mode for the past couple of weeks, just doesn’t mix well when the “risk on” is in full bloom like it is today…

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Then there was this… From…

China is set to designate one bank in Singapore to take on the role of clearing yuan trades as it gradually moves to internationalize its currency.

It is believed that either the Bank of China or the Industrial and Commercial Bank of China will be the clearing bank, according to analysts

Some analysts see this as a move by China to reduce its reliance on the greenback as a reserve currency.

Thio Chin Loo, Senior FX and Interest Rate Strategist with BNP Paribas, said: “So with the volatility of the US asset market over the last two years, it has probably caused some pain to the external balance sheets and therefore the need to want to diversify FX reserve holdings with the US dollar.”

China’s central bank may also grant the Monetary Authority of Singapore a qualifying foreign institutional investor status which allows the MAS to invest in Chinese financial products on the mainland.

The stories on China and their move toward a freely exchangeable currency are becoming more frequent, aren’t they? I think China is moving more quickly than they had previously planned, because of the things going on in the US.

To recap… Besides it being Frank Trotter’s birthday, the other big news for today is that we’ve had a currency and commodity rally versus the dollar for the ages! The euro is over $1.45, and gold is over $1,500! Rate differentials, S&P negative outlooks, and pretty strong earnings from US companies are all ganging up on the dollar this morning… Oil has rallied $3 overnight, and the Riksbank hiked rates 25 basis points.

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