People’s Bank of China has announced it is not the best interest to continue buying more US dollar. Currently China is already the world’s largest in US dollar purchaser. China will cap its purchases of US dollars in an effort to limit the depreciation of the Yuan. The value of any currency in the world depend on the demand from other countries. Although China has not specifically mention a time frame to pull the plug, this decision from China will practically put US dollar into a worse condition.
“It’s no longer in China’s favor to accumulate foreign-exchange reserves”, said the PBOC deputy governor Yi Gang (19th November 2013) bluntly during a speech at Tsinghua University for China Economists 50 Forum.
In less than a week before the statement, Zhou Xiaouchuan, the governor of China’s central bank has also announced that PCOB would slow down on the Yuan’s pegging to US dollar. Without pegging, Chinese Yuan is potentially to appreciate 2% in a day!
In Q3 2013 alone, China bought $166 billion US dollar reserves. As a matter of fact, China currently holds $3.66 trillion in US dollar reserves in total, which is more than 3 times that of any other countries.
China is also the largest holder of US debt, currently holding nearly $1.3 trillion in U.S. Treasury bonds.
This is a very funny video to explain relationship between China and US.
In economic fundamental, weaker US dollar means higher silver price – but is that so?
Continuing a down trend started last week, silver has spent the entirety of last week under $21/oz. In fact on last Friday (22nd November 2013), silver price was traded below $20/oz almost the whole day. Silver price is likely to get even lower before price start picking up.
Silver hit $20.75, its highest price thus far last week on last Monday morning, and began to fall not long after that. By noon, the precious metal was sitting at $20.34. By the end of the day silver price had sunk as low as $20.22, which is the lowest price since 9th August 2013.
Last Tuesday was a quieter day for silver. Silver price was traded between $20.22 and $20.48. However on Wednesday had more declines. Although silver began the day not far off from its price range the previous day, it had sunk to $20.12 by mid-morning and reached $19.83 by mid-afternoon.
The reason for silver price declined is due to the release of minutes from the US Federal Reserve’s Federal Open Market Committee (FOMC) meeting. Interestingly, FOMC showed that the Fed will continue quantitative easing “at full force”, but at the same time tapering is “in the cards relatively soon”.
These are 2 contradicting directions but the latter appeared to have a more significant effect on silver price.
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