Dear Friends,

Although I have not posted any charts of the Custodial Holdings at the New York Federal Reserve in some time, I have been monitoring it for any signs that foreign Central Banks are balking at buying US government or government-sponsored debt. Such a development would have a big impact on US interest rates not to mention the home mortgage industry.

This week a big development took place which bears further scrutiny. It occurred in the Agency Debt category where Central Banks dumped $57 billion worth of US agency debt. That is the largest one week drop that my records going back six years show. They are now at the lowest level in three years.

The drop is so extreme and so severe that I am wondering if it might be a clerical error that will be corrected next week. If not, it could well be that we are seeing signs that foreign Central Banks are getting serious about diversifying their reserves away from US dollar backed paper. Given the uncertainties surrounding the other fiat currencies globally, it is no stretch of the imagination that some of this money from the sale of such debt is making its way into the gold market.

I will continue tracking this and make some posts as developments warrant.

Click either chart to enlarge in PDF format