People’s Bank Of China Spends Money To Save Money
February 8, 2016
Dennis Gartman is editor and publisher of The Gartman Letter, and strategic advisor of the AdvisorShares Gartman Currency Hedged Gold ETFs (GEUR & GYEN). He regularly contributes to AlphaBaskets and lends his institutional insight to educate advisors and investors about commodities and the forex markets, including about trading gold in different currency terms.
The US dollar is unanimously higher although it is not rigorously so. It has risen more than a full percentage point relative to the “other” dollars since Friday and it has risen smartly relative to the Yen, but the violence of the dollar’s downward move mid-week last week still rings loudly.
The US dollar’s strength began almost immediately after the release of the Employment Situation Report on Friday and it has continued, quietly, in Asian forex dealing today [Ed. Note: The Chinese New Year has begun officially in China and shall last through this coming weekend, so trading activity in Asia has been rather greatly subdued due to the closures of the markets in Shanghai and the near effective total closures of the markets in Hong Kong and Singapore.].
Turning to Asia and Asian news, perhaps the most important news over the weekend other than the concerns regarding North Korea’s launch of a missile that it was told not to launch is the news that Beijing spent a stunning $100 billion in January “defending” the Renminbi. Actually it spent $99.7 billion in its forex operations, second only to the $107.9 billion spent in December. For the year, last year, China spent $513 billion in its forex defense measures and this is of course a tidy sum indeed. However, even with these “losses” China still has $3.23 trillion in reserves on hand and simply put could continue its aggressive forex operations for another six years at it the current pace before running its reserve position down entirely.
This, of course, the People’s Bank shall not do. There shall be some point at which the Bank will suspend forex operations, but it is anyone’s guess as to what level that shall be. Is it another $500 billion below the current level? $1.0 trillion lower? $2.0 trillion? We’ve no idea, but we are certain that there are talks going on within the walls of the People’s Bank on precisely this point. Would that we were privy to those talks!