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Ted Butler: A spectacular setup for silver and gold, but TAKE DELIVERY

Section: Daily Dispatches

By Christopher Swann and Richard Beales
Financial Times, London
Monday, May 16, 2005

http://news.ft.com/cms/s/883cd656-c62b-11d9-b69b-
00000e2511c8,ft_acl=,s01=2.html

The world's central banks were net sellers of US assets in March for
the first time since September 2002, according to figures that may
hint that the recent rebound in the dollar will be temporary.

Central banks sold a net $14.4 billion in US assets during the
month, the largest sale since August 1998, the US Treasury revealed.
Asian central banks, however, continued to accumulate reserves, with
their stockpiles rising by about $30 billion over the month.

"For those central banks that are not managing their currencies,
there may well be a feeling that the dollar is not a great bet,"
said Adam Cole, currency strategist at RBC Capital Markets.

Economists says these sales may be a sign that central bank
officials fear the dollar downtrend will at some point resume. The
most conspicuous sale was by the Central Bank of Norway, which sold
$17 billion of US Treasuries.

Private-sector inflows into the US remained robust in March at $74.5
billion, only slightly down from $79.4 billion in February.

"It does seem that when private sector investors are willing to
buy dollars, the central banks are happy for any excuse to offload
part of the mountain of dollars they have accumulated," said David
Bloom, currency strategist at HSBC.

Demand for US Treasuries was boosted by $28 billion of net purchases
from the Caribbean region, the highest level in at least four years.
Analysts associate banking centres in the Caribbean with hedge funds.

Some analysts suggest that hedge fund buying of US government bonds
in recent months may be associated with unwinding failed bets in
which the funds were short on Treasuries while owning riskier,
higher-yielding debt.

Among the central banks, reserve accumulation has been particularly
aggressive in Asia, where many of the banks have been eager to
prevent a rise in their currencies from choking off export growth.

The US dollar fell by about 30 percent against floating currencies
from its peak in February 2002 until the end of last year. But since
then it has bounced back just over 5 percent.

Many currency strategists believe the dollar downtrend will
resume. "The cyclical picture for the US still looks very good
for the dollar," said Ray Attrill, director of US research at 4Cast,
an economic consultancy. "But there are no convincing signs that the
current account deficit is getting better and this should eventually
weigh the dollar down again."

Although the US trade deficit narrowed in March from $60.6 billion
to $55 billion, most economists believe this was due to a shortlived
slowdown in US demand and the timing of the Chinese new year. Last
year the current account deficit was $666 billion, or 6 percent of
gross domestic product.

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