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Friday, April 29, 2011

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European Inflation Continues to Rise, Pressuring Dollar Yet Again

Posted: 29 Apr 2011 07:00 AM PDT

Trader Mark submits:

At this moment, the euro is up for the ninth consecutive session versus the dollar. We'll leave out the record highs of the Australian dollar and Swiss franc for the moment (not to mention precious metals) to concentrate on the euro ... which is not exactly a region the U.S. should be faltering against.

But with the willful neglect of the dollar by The Bernank (who deflects all commentary on this subject to the US Treasury), and the ECB on a path of increased interest rates, the euro is winning the ugly duckling contest. And as you should know by now, the only trade in the market nowadays is the inverse dollar trade; when it sucks wind, you can buy anything.

This morning the euro region reported another uptick in inflation. I don't know the ins and outs of how the Europeans create their inflation figures as I do with


Complete Story »

Tempted to Sell Silver, But for What?

Posted: 29 Apr 2011 06:55 AM PDT

Adam Sharp submits:

I was not early to the precious metals trade by any means. But I was lucky enough to get advice from a friend in 2007 that convinced me to go long gold from around $900-1050 and silver from $9-12.

Like many others, today I face a conundrum. Should I sell at least some of my position? It seems greedy not to, yet I haven't trimmed at all so far.

Why not sell after a 433% runup? Greed? Hopefully not. I like to think it's a lack of alternative. I've considered flipping silver profits into more palladium, but that idea just seems meh for now.

Cash Out?

Perhaps silver longs should trade bullion for US dollars. Roll the cash into an Ally CD at 1.2%, maybe. With real price inflation running at 5-10%, and taxes owed on the meager interest, that CD should return an impressive -7% annually. Seems like


Complete Story »

How Reuters Dropped the Ball on Gold Story

Posted: 29 Apr 2011 06:47 AM PDT

Tim Iacono submits:

It's been an interesting few hours of trading in the precious metals markets, as "unstoppable" silver seems to be anything but that on this Friday, meandering around level for the day while the gold price surges more than $30 an ounce. Whether or not silver pierces that $50 level remains to be seen, but it doesn't look like it will happen today.

One of the sloppiest articles on gold in recent memory can be found here in the U.K. edition of Reuters, with author John McCrank (apparently his real name) tipping readers off to the quality of his writing by citing Jon Nadler on multiple occasions. Jon's been wrong about gold for about $1,000 an ounce now, so, it's hard to take him seriously anymore -- and it's a wonder why anyone would call him, much less cite his opinions.

The gist of the story is that hedge funds may


Complete Story »

Bernanke's Hocus-Pocus

Posted: 29 Apr 2011 06:42 AM PDT

Modeled Behavior submits:

By Karl Smith

From Ezra Klein:

Tom Gallagher, a fiscal and monetary policy specialist at the Scowcroft Group, e-mails to say that I've been too harsh on Ben Bernanke, and his rhetorical emphasis on inflation is a way of buying time and political space to ignore inflation .. .

The chart he's talking about tracks the index for dollar futures, which fell on Wednesday. I couldn't get Gallagher's out at a sufficiently high quality, so I snagged a 5-day track from marketwatch.com. As Gallagher says, the index falls around the time of Bernanke's speech, suggesting the market heard less about inflation than it had hoped.

[Click chart to enlarge]

I am not sure about this. I want to take time to go through the testimony word-by-word and do some analysis, but one thing I can tell you straight from memory is that Bernanke's bit about the dollar was embarrassing for


Complete Story »

“Equities Have Achieved a ‘Holy Grail'” — Sign of a Top?

Posted: 29 Apr 2011 06:35 AM PDT

During the early stages of the housing bubble Morgan Stanley's Stephen Roach was one of the few sane voices on Wall Street. His warnings about the global economy were clear and obviously true, and his willingness to bite the hand that fed him was admirable. The guy had guts. In early 2006 I had the following article all ready to post:

The Bravest Man on Wall Street

People tend to lump the big-name critics of the U.S. economy together, and assume that they're all coming from the same place and somehow benefiting, one way or another, from their points of view. But that's not true. It's relatively easy for a Bob Prechter or Doug Noland or Marc Faber to hold to their positions for years while their truth gradually dawns on the rest of us, because they more-or-less run their own shows. The might lose a few investors, but they don't face institutional resistance from above and below.

That's why Morgan Stanley's Stephen Roach deserves our admiration. He doesn't work for a short seller and he's not the author of best selling gloom-and-doom books. He works for a big, mainstream investment bank, where optimism is golden and pessimism scares clients, lowers trading volumes and eventually gets you fired. To grasp the truth of this you have to understand the internal structure of an investment bank. It's made up of bankers who do deals, traders who trade, and salespeople who convince money managers and other traders to buy the firm's securities. None of these guys likes the idea of a global economic meltdown. In fact they hate sell recommendations in general.

For a salesman, getting a client to buy a given stock or bond builds a relationship and creates an ongoing income stream. At the very least, knowing a customer likes a given security allows the salesman to sharpen the pitch for the next call. On the other hand, if a customer sells everything and goes to cash, that's it. They don't need updates and you have no way of knowing what to offer them by looking at their holdings. Your income goes down, maybe you get fired, and you blame the senior strategist who terrified the money manger into doing this.

It's the same with investment bankers. If investors are selling rather than buying and the overall market is falling, there's no demand for new IPOs. So investment bank economists who predict trouble and aren't immediately proven right tend to be escorted to the door by security.

And yet here's Stephen Roach, coming out every week with some new take on the chaos sure to result from growing global financial imbalances. A couple of years ago he is said to have told a group of Boston money managers that a global meltdown was a near-certainty…

Then, in May of 2006, Roach threw in the towel:

Former bear turns bullish on global economy

The world economy may be able to unwind its current imbalances without serious disruption, Stephen Roach, Morgan Stanley's famously bearish chief economist, predicted on Monday, in a remarkable revision to several years of gloomy prognosis.

Mr. Roach had long warned that the US current account deficit and Asian central banks' ballooning currency reserves risked destabilizing the global financial system.

But on Monday, in a note to clients, he said: "I must confess that I am now feeling better about the prognosis for the world economy for the first time in ages." His comments came as the dollar hit a one-year low against the euro and seven-month low against the yen, as investors remained confident the US Federal Reserve was nearing the end of its interest-rate-tightening cycle.

I sadly filed the blog post away, glad that I hadn't published it just before Roach's apostasy. And over the next couple of years it became clear that this was a sign of a market top. By 2008 the global economy was melting down and Roach was no doubt haunted by visions of the superstar he would have become if he'd only held on a little longer. You don't see that much of him these days.

Now fast-forward to April 2011. The markets are rocking, the risk trade is back on with a vengeance, and bears are suffering through the same death-by-a-thousand-cuts as in 2006. Stephen Roach has been replaced by David Rosenberg, former Merrill Lynch economist and now senior strategist and economist at Gluskin Sheff in Toronto, as the most prominent institutional bear. In clear, well-reasoned reports, he's been predicting doom for the economy and the stock market, only to see everything just keep on rising.

And now he's switched sides:

David Rosenberg Turns Bullish

After trying to call the top in equities every other week for the last two years, David Rosenberg has finally thrown in the towel on the bearish calls.  In his Wednesday research report he detailed why he believes equities have achieved a "holy grail" and should continue to move higher:

"On a very near-term basis, and despite my long-standing macro concern list, which has not gone away, it does look like the market is set to rise further.  The technicals are suggesting as much, though I do await what Walter Murphy may have to say on the matter.  I had said before that a breakout to new highs led by higher volume would be an important technical signpost. Well, we achieved that Holy Grail yesterday – both in level terms and with respect to the change. This is not throwing in the towel, it is an acknowledgment of what the market internals are flashing at the current time from a purely tactical and technical standpoint….

…All that said, we had a breakout to new highs yesterday and this time, the volume rose on the major exchanges, not to mention rising above the 50 DMA on the Nasdaq, which is a clear sign that the big boys are putting money to work. This market continues to impressively climb a wall of worry. Market internals are too strong to ignore right now – the NYSE advancers beat decliners by a 3 to 1 ratio yesterday; the Dow transports soared 1.9%; and the small caps beat their major benchmarks. My overall macro concerns have not gone away, but these market facts on the ground are tough to ignore."

Okay, not exactly an exuberant call for Dow 36,000, but still remarkable after all the gloom and doom Rosenberg has published in the recent past. So is this one of those capitulations at the top that we'll look back on as a signal to mortgage the house and short everything in sight? Who knows? But it sure is interesting…

Inflation Scorecard: New Highs Scored by Gold Aren't Universal

Posted: 29 Apr 2011 06:34 AM PDT

Hard Assets Investor submits:

By Brad Zigler

The euro and the Swiss franc held off bullion this week, to rise 0.5 percent and 0.4 percent, respectively. Other world reserve currencies swooned before gold, though, setting all-time lows. Sterling gave up 0.2 while the yen fell 0.9 percent.

For dollar-denominated assets this week:

  • Thursday's London morning gold fix was 1.7 percent higher at $1,531 after averaging $1,512; COMEX spot last settled at $1,531 for a 2.2 percent gain; New York prices also averaged $1,512 for the week; average daily COMEX gold volume fell 8.1 percent to 153,070 contracts, while open interest inched down 136 contracts to 537,810.
  • COMEX gold inventories ticked up by 15,853 ounces (0.5 tonnes) to 11.035 million and now cover 20.5 percent of open interest; 1.94 million ounces are available for delivery, but immediate demand for COMEX bullion doesn't presently exceed 20,200 ounces.
  • SPDR Gold Trust (GLD) vault assets declined by 0.6

Complete Story »

96 Stocks That Would Have Already Made You 50%+ This Year

Posted: 29 Apr 2011 06:29 AM PDT

Trader Mark submits:

With 2011 a third of the way complete, the S&P 500 has already surpassed the fashionable "year end" target of 1350 that most Wall Street strategists have put out at the end of 2010. In constant dollar terms the S&P 500 is barely up for the year, but thankfully it is priced in U.S. pesos, so the nearly 1:1 correlation between dollars and equities has led to nominal gains.

However in real terms you have to do better to offset the loss of your purchasing power to really get ahead. Here are 96 names that have already gained at minimum 50% this year. To keep out the low rent stuff, the minimum market cap is $300M, minimum stock price is $10, and average volume has been in excess of 200K shares a day.

On this list I've been tracking Sky-mobi (MOBI) since early February, but have not mentioned it on


Complete Story »

ETF Suggestions for BRIC Economies' Demanding a Bigger Role

Posted: 29 Apr 2011 06:23 AM PDT

Tom Lydon submits:

The leaders of the emerging market BRIC countries have demanded a greater role in the global financial system and an overhaul of the monetary system that relies heavily on the dollar. Can these economies pave the way for exchange traded funds to rally within these countries?

The BRIC (Brazil, Russia, India and China) economies say the global economy relies too heavily on the U.S. dollar, as the leaders of these countries want to lower the importance of the greenback within international financial transactions. A shift in the move toward a multi-currency reserve and trading system is dawning, but there is still a long road ahead for the emerging economies.

David Marsh for MarketWatch reports on some of the action taking place within the BRIC economies:

  • Addition of South Africa to the former BRICS format seems to have galvanized the grouping. The five countries agreed to expand use of their own

Complete Story »

GOLDRUNNER: Gold on Track to Reach $1860 – $1920 by Mid-year

Posted: 29 Apr 2011 05:02 AM PDT

The Golden Parabola is continuing to follow the cycle of the 70's Gold Bull as the U.S. Dollar is further devalued against Gold to balance the budget of the United States at this point in the "paper currency cycle" where Global Competitive Currency Devaluations rule. As discussed in a recent editorial this point in the cycle suggests that Gold will soon enter into a more aggressive higher rise in price to $1,860 - $1,920 per ozt. as it starts to project the higher Vth Wave characteristics of this new Golden Parabola. Let me explain. Words: 1403

How to “Play” a Parabolic Move in Silver

Posted: 29 Apr 2011 05:02 AM PDT

In order to successfully identify bubbles and profit from them, one needs to know the tipping point at which a bubble [in this case a silver bubble] is unsustainable and begins to breakdown...This article focuses on just one of a myriad of factors that determine when a bubble may pop - momentum - and addresses what trading strategies may be suited to the situation. [Let me go on.] Words: 1475

Gold is ON FIRE today

Posted: 29 Apr 2011 04:27 AM PDT

Gold up 10x by percentage over silver so far today.

Where are the rockets?

Oh, I forgot. Anyone who owns gold instead of silver and copper is a foolish buffoon.

Secret Silver Buying by Russian Billionaire, Chinese Traders, and People's Bank of China to Lead to Comex Silver Default?

Posted: 29 Apr 2011 04:25 AM PDT

The theories are not mutually exclusive and may be true. Indeed, Chinese, Russian and other private interests may be cornering the physical market in an effort to end manipulation of the silver market by Wall Street banks in order to ensure the silver price rises very sharply and creates significant profits on their silver bullion holdings. Indeed, if the People's Bank of China is involved – profit may not be the end game, rather the positioning of the Chinese yuan as the new reserve currency through use of gold and silver bullion reserves.

Global Macro Notes: Pension Funds and the Zero Bubble

Posted: 29 Apr 2011 03:34 AM PDT

In a zero interest rate environment, we can think about market participants in two groups:

  • Those who are taking risk because they can.
  • Those who are taking risk because they have to.

These are not the traditional buckets. Normally the dividing lines run retail versus institutional… investor versus trader… value versus growth or what have you.

Market participants can also be sorted by investment mandate.

Traditional money managers have "career risk" — they live and die on beating their benchmarks, or at least not lagging them too much.

Hedge fund managers, meanwhile, have their performance objectives and high water marks. They want to do well so they can get paid.

But neither of those groups have do-or-die performance requirements, in the sense of "make X percent or you are dead."

It doesn't look so good lagging the S&P, of course. But if the S&P is dead flat and these guys finish up a little better or on par with flat, they will probably be okay.

Not so with pension funds. Pension funds have a target they must hit.

We can thus characterize the mandates of the three groups — mutual fund managers, hedge fund managers, and pension fund managers — like this:

  • benchmark return (matching or beating the relevant index)
  • absolute return (positive performance, not losing money)
  • assumed rate of return (the return target that was promised)

Consider the following on Calpers, the largest pension fund in the United States, from a 2010 Bloomberg piece (emphasis mine):

Scoring in the capital markets has long driven the economics of these funds. By assuming investments will earn 7 to 8 percent every year, the elected officials and union leaders who run state retirement systems can ask for fewer upfront contributions from government workers and the agencies that employ them. In 1999, Calpers, flush with profits from the dot- com boom, won passage of legislation that retroactively boosted benefits for retirees at the same time it lowered contributions. The pension vowed to finance the higher payouts with investment gains.

"You could get return without much risk — that was the seduction — and it wasn't just Calpers that acted on that belief; it was public sector plans around the country," says Teresa Ghilarducci, an economics professor at the New School in Manhattan and author of When I'm Sixty-Four: The Plot Against Pensions and the Plan to Save Them (Princeton University Press, 2008).

As Calpers's returns faltered during the next decade, California taxpayers paid $2.3 billion a year to cover the pension's benefits, more than five times the $450 million originally projected in 1999, according to David Crane, Governor Arnold Schwarzenegger's senior economic adviser.

"It's perverse," Crane says. "Calpers could lose every penny tomorrow, but the only people who wouldn't be adversely affected are its beneficiaries because the state contractually owes them the money."

These monster funds — who run tens to hundreds of billions, Calpers in the neighborhood of $230 billion — are not like the other guys. They have to hit their assumed rates of return.

There is a scene in Goodfellas where Henry Hill describes what it is like to be "partners" with crime boss Pauly. The catch-phrase of the scene is "F– you, pay me." No matter what happens, good, bad or ugly: "F– you, pay me."

This is, roughly speaking, how Calpers and countless other giant pension funds stand in relation to their legally binding payout obligations. They have to make good on the checks no matter what.

Furthermore, a pension fund is required to monitor asset levels based on assumed rate of return. If the assumed rate of return falls, more assets have to be gathered to cover obligations.

Were Calpers to switch things up and say "You know, we can only realistically project a 5 percent rate of return, not 7.75 percent," that would mean a big shortfall. The math of paying off X retirees at X dollars per month would cease to add up.

Political mayhem, and possible accusations of insolvency, would ensue.

So what these mammoth pension funds do is keep their assumed rates of return unrealistically high — between 7 and 8 percent in the above example — and then go out into the real world and hope like heck they can actually make those returns.

But do you know how hard it is to make 8 percent on +$230 billion? Prudently and conservatively? In a zero interest rate environment?

What the Federal Reserve has done is to force these guys way, way out onto the risk curve.

The alternatives to "making the nut" are extremely ugly: Forced capital contributions (making angry retirees pony up more cash); a diminishing capital pool as payouts eat away principal (shrinking dollar returns yet further); or worst of all, touching off a fiscal / legal / political crisis that engulfs the state.

Bond yields are pitiful. Equities are a big step up the risk ladder. Private equity and other 'illiquids' went tapioca in 2008. So what is a Calpers manager (or whomever) to do?

In a weird way, these entities that are supposed to max out on responsibility — holding the savings of teachers, cops, firemen and the like — have been forced into the classic gunslinger "go big or go home" scenario.

You've heard the basic plotline:

The manager of XYZ fund is down 18 percent in the quarter and hasn't reported yet. If he changes nothing, he is dead — the investors will blow him out when they find out. So he is incentivized to take a major gamble before the reporting period ends. If the gamble pays off, he gets back in the black and things are okay. If the gamble leads to a catastrophic loss of client funds, well… he was facing a personal Waterloo anyway, so why not go out with a bang.

Pension funds, the biggest investment beasts on earth apart from Sovereign Wealth Funds, have a dilemma of similar flavor. They can stretch to hit their unrealistic targets or they can face slow-bleed catastrophe. For the underpaid (by Wall Street standards) managers in question, the alternative to "reaching for yield" is reaching for a pink slip.

Is it any wonder, then, that paper assets are being chased higher? To the degree that pension funds are taking on excessive risk out of necessity, rather than choice or prudent assessment of opportunity, their buying bids are like a deep bullish tide beneath the surface of the market ocean.

As long as the self-reinforcing feedback loop is in place, the game works. The Federal Reserve is using not just Quantitative Easing, but the absence of conservative return options in a "how low can you go" setting to gin up appetite for risk. And as of this writing — as attested by a surging Dow and S&P, with a new spotlight on quality blue chip names — things continue to go swimmingly.

But if this pension fund force is genuinely powerful, then it is also deeply distorting. Managers who buy because they have to — who edge out onto the risk curve because they have no choice — are not likely to be considering market valuations, profit margin regressions, or top down inflation threats in their investment decisions.

Instead, they are blindly and forcibly contributing to yet another Fed-engineered bubble that will be enticing as long as it lasts… yet unleashing new castrophe when it bursts.

JS

Silver: Runaway Move, Correction, Or Crash?

Posted: 29 Apr 2011 03:01 AM PDT

Silver attempted to take out 50 on Monday of this week and instead had a big reversal day as it temporarily ran out of gas. Then after testing 45 the following day silver has moved higher after the Bernanke press conference and is once again approaching 50. For the very short term silver appears to be trapped in the 45/50 box and is awaiting a break either above or below this box.

Short Sellers Now Screaming About a Buy Side Silver Conspiracy

Posted: 29 Apr 2011 01:58 AM PDT

Seeking Alpha

Fire RIver Gold Hits Gold again, market asleep

Posted: 29 Apr 2011 01:54 AM PDT

Fire River Gold Announces 41.0 g/t (1.20 opt) Gold and 33.8 g/t (0.99 opt) Silver Over 9.0 m (29.5 ft) At Nixon Fork Gold Mine, Alaska Fire River Gold Corp FAU 4/28/2011 8:00:00 AM VANCOUVER, Apr 28, 2011 (Canada NewsWire via COMTEX News Network) -- FAU: TSX.V FVGCF: OTCQX FWR: FSE -- 41.0 g/t (1.20 opt) gold and 33.8 g/t (0.99 opt) silver over 9.0 m (29.4 ft) in hole N11U-033

Silver on fire in India

Posted: 29 Apr 2011 01:48 AM PDT

Mineweb

cret Silver Buying by Russian Billionaire, Chinese Traders…

Posted: 29 Apr 2011 01:45 AM PDT

gold.ie

Would you buy Gold today? Listen to the sheep on the streets...

Posted: 29 Apr 2011 01:37 AM PDT

Click here for a Friday laugh

Timberline Reports Bonanza Grades at Butte Montana

Posted: 29 Apr 2011 01:36 AM PDT

More exciting results surfaced from underground drilling.

Timberline Resources, our 2010 Vulture Bargain #4 and our top pick in Steven Halpern's TheStockAdvisors.com analyst challenge for 2011 released news this Friday morning that has a definite "wow" factor.

 
The press release begins:  

"Timberline Resources Corporation (TSX VENTURE:TBR)(NYSE Amex:TLR) ("Timberline" or the "Company") today announced more results from underground drilling at the Butte Highlands Gold Project in southwestern Montana. The highlight was Hole BHUG11-022 which returned 14.5 feet grading 6.77 ounces per ton (opt) gold, including 3.5 feet grading 27.6 opt gold, along with other mineralized intervals. This is the highest-grade gold assay ever reported at Butte Highlands."

Vultures (Got Gold Report Subscribers) will no doubt want to read every word of the new drill results release at this link:   (Or copy and paste the following into your browser:  http://www.timberline-resources.com/main.php?page=183&ress=148  )


We kind of like that "highest-grade gold assay ever reported at Butte Highlands" part.  When we see 27.6 ounces of gold per ton reported, our confidence in the Butte Highlands project is reinforced, but it is only part of the good news about the "good stuff" that Timberline has been delivering for shareholders.   

 
***

As we send this off to be posted, shares of TLR are up modestly (+7-cents or 7%) in the U.S., trading at USD $1.04.  By way of disclosure we are long shares of TLR here at Got Gold Report, as if anyone didn't already know that… 

Our original writeup of the 2011 TLR Top Pick story is available at this link:  http://www.gotgoldreport.com/2010/12/timberline-resources-our-top-pick-for-2011-.html  (See the link to the PDF version in the story.)

The AOL version, which does not include images or graphs but received wide distribution is at this link:  http://www.bloggingstocks.com/2011/01/01/top-picks-2011-timberline-resources-tlr/ 

Our June, 2010 report following a site visit to the Butte Highlands project is at this link:  http://www.gotgoldreport.com/2010/06/add-timberline-resources-to-the-radar-screen-pronto.html 

Gold bubble bursts, moves higher. Happy Friday.

Posted: 29 Apr 2011 01:32 AM PDT

Enjoy being right. Its good for a change.

Downside Targets for Silver

Posted: 29 Apr 2011 01:30 AM PDT

Silver debunking

Posted: 29 Apr 2011 01:24 AM PDT

Silver has been running hot and so has the misinformation. Some antidotes:

Sprott Begins Selling PSLV Shares Good detective work by Kid Dynamite on Sprott's other funds selling their PSLV shares. My guess is that the funds sold their shares and then bought physical at spot, pocketing PSLV's 17% premium

Comex Explains Large Adjustment in Silver & Gold Registered Inventories Brian O'Flanagan explains the large transfers of COMEX silver from registered to eligible.

How the COMEX Didn't Lose its Silver Tom Szabo's detailed coverage of the COMEX transfer issue.

Gold and Silvers Daily Review for April 28th, 2011

Posted: 29 Apr 2011 01:20 AM PDT

Gold Forecaster

The Dragon rises: Chinese currency shoots to highest level since 1993

Posted: 29 Apr 2011 12:43 AM PDT

From Bloomberg:

China's yuan strengthened beyond 6.5 per dollar for the first time since 1993, supported by speculation the central bank will allow appreciation to help tame the fastest inflation in more than two years.

The currency's seventh weekly gain, its longest winning streak since July 2008, may damp U.S. criticism of China's exchange-rate policy before Vice Premier Wang Qishan heads to Washington next month for talks with Treasury Secretary Tim Geithner. Consumer prices in Asia's biggest economy rose 5.4 percent from a year earlier in March, exceeding the government's 4 percent goal for this year.

"Inflation is still higher than what the government would like to see," said David Cohen, a Singapore-based economist at Action Economics, who previously worked for the Federal Reserve. "The central bank is tolerating faster currency appreciation to contain import costs."

The yuan strengthened 0.16 percent to close at 6.4910 per dollar in Shanghai, earlier touching a 17-year high of 6.4892, according to the China Foreign Exchange Trade System. It rose 0.9 percent this month, the best performance of 2011. In Hong Kong's offshore market, the currency jumped 0.28 percent to 6.4645, the biggest gain in Bloomberg data going back to Aug. 24.

The People's Bank of China set the yuan's reference rate at 6.4990 per dollar, the strongest level since July 2005. The currency is allowed to trade up to 0.5 percent on either side of the official rate.

Dollar Slide
Twelve-month non-deliverable forwards rose 0.22 percent to 6.3095 per dollar as of 4:40 p.m. in Hong Kong, trading at a 2.9 percent premium to the onshore spot rate, according to data compiled by Bloomberg. Local billionaire Li Ka-shing's Hui Xian Real Estate Investment Trust, the city's first listed shares denominated in yuan, began trading today.

The "unusually fast pace" of yuan gains confirms that the yuan is being used to fight inflation, Dariusz Kowalczyk, senior economist at Credit Agricole CIB in Hong Kong, wrote in a note to clients today. He said there may be a "sharp gain" once 6.50 is breached and recommends buying the yuan against the greenback using non-deliverable forwards.

The dollar weakened this month against all 16 major currencies monitored by Bloomberg as the Fed maintained a near-zero benchmark interest rate and boosted the supply of the U.S. currency by buying Treasurys, a policy known as quantitative easing that is set to end in June.

'Managed Appreciation'
A halt to the U.S. central bank's Treasury purchases will alleviate pressure for yuan gains, Huang Zhilong, a researcher with the China Center for International Economic Exchanges, wrote in a commentary published in today's China Securities Journal. The center is affiliated with the National Development and Reform Commission, China's top economic planning agency.

Chinese officials told Senate Majority Leader Harry Reid and nine other U.S. senators who visited China this month that the yuan's "managed appreciation" will continue, according to an April 26 statement on Reid's website. The senators called for "more aggressive" appreciation, the statement said. The group met with leaders including Vice President Xi Jinping and People's Bank of China Governor Zhou Xiaochuan.

New York Senator Chuck Schumer, who was on the trip, said yesterday the talks convinced him to push more forcefully for legislative action to curb yuan manipulation that gives Chinese exporters an unfair advantage. Treasury Secretary Geithner and Secretary of State Hillary Clinton are due to meet with Chinese Vice Premier Wang and State Councilor Dai Bingguo during the annual U.S.-China Strategic and Economic Dialogue being held May 9-10 in Washington, the U.S. State Department said this week.

U.S.-China Talks

China's currency appreciation often gathers pace in the run-up to high-level talks between the two nations. This year's biggest weekly advance of 0.58 percent was recorded in the week ended Jan. 16, before Presidents Hu Jintao and Barack Obama met in Washington on Jan. 19. The yuan strengthened 1.4 percent in the month before Obama discussed currency policy with Premier Wen Jiabao in New York on Sept. 23.

"China always lets the yuan appreciate faster before they meet the U.S.," said Kenix Lai, a foreign-exchange analyst at Sun Hung Kai Securities Ltd. in Hong Kong. "It's like a gift to cultivate a friendly atmosphere for the meetings. This time is no exception."

China's Commerce Ministry said on April 22 that there is "relatively large" pressure for the yuan to appreciate, noting that currency gains have had some impact on export orders. The country's imports exceeded overseas sales by $1.02 billion in the January-March period, the first quarterly trade deficit in seven years, customs bureau data showed on April 10.

Smaller Exporters
"A one-off revaluation is definitely impossible because it will devastate those smaller exporters that are on the edge of life and death," said Zhao Qingming, a senior analyst in Beijing at China Construction Bank Corp., the country's second-largest lender. He estimated the yuan will rise by about 7 percent against the dollar for the whole of 2011.

The yuan has advanced 1.5 percent so far this year and will strengthen a further 3 percent to 6.30 per dollar by the end of December, according to the median estimate of 25 analysts surveyed by Bloomberg. That's the biggest gain projected for Asia's 10 most-used currencies, polls show.

To contact the reporter on this story: Fion Li in Hong Kong at fli59@bloomberg.net; Judy Chen in Shanghai at xchen45@bloomberg.net.

To contact the editor responsible for this story: James Regan at Jregan19@bloomberg.net.

More on China:

The real reason China is buying so much gold

The single best number that shows how China is taking over the world

China's shocking weekend announcement: Proposes to dump the majority of its dollar holdings
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