Foreign central bank holdings of U.S. debt rose $7 billion in a week

The Federal Reserve released data Friday indicating that overall holdings of United States marketable securities by foreign central banks rose $7 billion in the week that ended July 3. It now stands at $3.28 trillion.

Holdings of Treasury debt by foreign central banks, meanwhile, increased $9 billion in the same week and now total $2.94 trillion. Overseas institutions’ holdings of securities issued or guaranteed by the largest mortgage financing companies, such as Fannie Mae and Freddie Mac, declined by $1.7 billion to an overall number of more than $300 billion.

In the same report, the Fed confirmed that holdings of “other” securities, including corporate bonds, asset-backed securities and non-marketable U.S. Treasury securities, jumped by $142 million and reported to be $38.59 billion.

These figures aren’t necessarily new or surprising to many because central banks all over the world have been large purchasers of U.S. debt, especially since the collapse of the economy in 2007 and 2008. The three largest holders (nation-wise) of U.S. debt are China ($1.26 trillion), Japan ($1.1 trillion) and Brazil ($252.6 billion).

After Fed Chairman Ben Bernanke announced that the U.S. central bank would begin to taper off its quantitative easing initiative sometime next year, central banks began to sell of record amounts of U.S. Treasury debt last week. In that week, overseas holdings declined $32.4 billion to $2.93 trillion, which is a record and eclipsed the $24 billion figure in August of 2007.

“People are throwing in the towel,” said Markus Rosgen, chief Asia equity strategist at Citigroup, in an interview with the Financial Times late last month. “It’ll drag the market down lower over the course of the summer.”

Despite the significant pullback in gold prices, central banks all over the world are still buying up the yellow metal. The central banks of Russia (eighth-largest holder of U.S. debt), Greece, Turkey, Kazakhstan, Azerbaijan and several others all continued to increase their gold holdings and acquire the precious metal at discounted rates.

In the morning trading session Monday (at the time of this writing), gold inched upwards by $18 and is trading at around $1,230. Silver is also trading in positive territory by $0.32 and is holding steady above the $19 mark.

Last week, in an interview with CNBC, joined by Peter Schiff, Michael Vogelzang, the president and CIO of Boston Advisors, suggested that perhaps central banks are behind the significant drop in precious metals prices. He hinted that these financial instruments may be manipulating the costs.

“The big elephant in the room is the central governments that own gold, and they can jerk this thing around any way they want. So is it beyond reason to think that they are manipulating the price of gold to keep people in the equity markets? Wouldn’t surprise me a bit,” explained Vogelzang. “Why would it surprise you that they manipulate the price of gold when they clearly manipulate the price of the bond market every day, right? It doesn’t take a huge leap of logic to say that.”

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