Dear CIGAs,

Here are a few things to keep in mind:

1. The move from 1.5025 in the Euro to the present level of 1.4752 is a product of modest intervention and a great deal of verbal intervention.

2. There is a monetary consequence of intervention that adds liquidity to liquidity.

3. Nothing in monetary action has a worse track record than intervention.

4. Intervention is extremely short term.

Jim Sinclair’s Commentary

There are two types of intervention in the foreign exchange markets, sterilized and unsterilized. Unsterilized just intervenes whereby the intervention directly impacts the intervening country’s money supply. In today’s situation, unsterilized intervention would cause rates to rise in the euro if continued, certainly impacting the ability of Euroland to maintain the illusion of recovery.

If unsterilized intervention were to occur, more than likely at this time it would be very short term and therefore ineffective.

"Conventional academic wisdom holds that "sterilized" interventions have little impact on the exchange rate and are a waste of time and of the government’s foreign exchange reserves. In a sterilized intervention, the central bank offsets the purchase or sale of foreign exchange by selling or purchasing domestic securities so as to keep the domestic interest rate at its target. Since the domestic interest rate usually is considered the main determinant of the value of the domestic currency, many argue, it must change in order to influence the exchange rate."

More…

Either way, both unsterilized and sterilized intervention in the economic condition the world is facing now are absolute wastes of time that will not establish a maintainable currency level. There is no currency market SUSTAINABILITY to all the talk impacting markets today.

We are witnessing the death of the dollar as the reserve currency of choice this winter and a major bull market in gold that will go to $1224, $1650 and then on to Alf’s numbers.