Swiss franc euro-peg removes a safe haven competitor for gold and silver
Posted on 06 September 2011 with 8 comments from readers
News that the Swiss franc is being effectively pegged at a minimum of 1.20 to the euro gave recent buyers of the currency an instant profit today and rallied Swiss stocks as companies no longer have to deal with a red-hot currency.
But by the same token one of the world’s great safe haven asset classes was eliminated and relegated to the same league as the weak euro. From now onwards the Swiss central bank will have to track the ECB and you might as well be in euros as Swiss francs.
No safe haven
That eliminates one safe haven competitor to precious metals. Strangely gold and silver lost a tiny percentage on the news which is actually very bullish for precious metals.
For if you hold Swiss francs and now want to protect against the devaluation of the euro and dollar, and higher rates of inflation, then you should be buying gold and silver, the only true money left in the world.
Will Arabian investors who were partly responsible for driving up the value of the Swiss franc since the start of the Arab Spring uprisings now transfer their savings to gold and precious metals?
Rush to precious metals?
Perhaps we will see a repeat of what happened three years ago when a group of Saudi investors transferred $3.5 billion into gold at the height of the global financial crisis (click here). It could also be that silver’s importance as an alternative precious metal to gold is realized, as there is no other.
HSBC’s currency expert Charlie Morris told CNBC TV that the gold price still has a large upside but reckoned the bull market would end within two years. That is a very different tale to what HSBC said three years ago but late conversions are a feature of all bull markets.
‘Gold is the last bull market around’, Mr. Morris astutely noted, and indeed without the Swiss franc in play the smart money has not much other choice, apart from silver that is still not acknowledged as the best performing asset class by the so-called experts like Mr. Morris.
Swiss gold coins would still be a good buy!
8 Comments posted by readers:
Two years left? And then what? Strictly speaking about wealth preservation, do you have any idea were one could park their money after this bull market is over (if so)? The stock market is not an answer because it’s a gamble and should be left to professionals.
Do you have an idea of what safe haven might emerge by then? It’s clear that when major economies want to inflate their debts away, all countries (even Switzerland) must follow suit and devalue accordingly (otherwise they’d have their economies crushed). Perhaps, in 2 years they’d be finished inflating away their debts. Then, should we start trusting them again and park our wealth in their currencies?
Ed Note: We will get to that in the ArabianMoney investment newsletter, are you a subscriber yet?
@ Andrew:
As many of us now know, the stock markets have been corrupt for years, and are now at the extreme end of corruption. I suspect that, two years from now, gold and silver . . . and other commodities such as base metals, might be the only places to park one’s money. But then I’m not clairvoyant.
By devaluing their currency, and printing the Swiss franc with abandon, this obviously makes gold and silver the only “safe havens” left, as Pete has stated. But the Swiss action has also exacerbated the liquidity problem in Europe, and has accelerated the flow of “money” out of Europe… e.g US treasuries (again exacerbating the European liquidity problem). Many Europeans are now parking their money in short/intermediate term US treasuries; the US 10 year has broken the 2 handle, and is now at 1.95% interest rate.
There are also FOREX currency trades that you can make, but htat’s for those with a strong stomach.
Check out Mike Maloney, the wealth cycle guru. He fancies Real Estate next. Jim Rogers is recommending buying land and farming it. Spoke with a broker in NY the other day, I was surprised that he was buying gold AND dividend earning stock.
I am working on a strategy to exit PMs. The considered view is to watch inflation like a hawk and start to bail as the Central Bankers raise interest rates in response to much higher levels of inflation than we have now. Could take 1-5 years..
I’m aware of M. Maloney’s wealth cycles ideas. What’s bothersome though, is that some people only want to maintain their wealth and not be bothered by monitoring the state of the wealth cycles. It’s bad that we simply can’t have a deposit in the bank and be assured that the interest rate will cover any inflation downsides. Things are f****d up
@lids…..you don’t get it….no central banker has the balls to raise rates and get the big blowup started(that’s coming in spite of them)……completely out of the realm of possiblities.
there is no paul volker on the horizon….did you not read bernanke’s helicopter speech?
farmland is fine for heavy hitters like rogers….and he has small children to leave it to….a mistake in itself because people that grow up waiting for their inheritance miss a tremendous amount of life…i have witnessed it.
Wasn’t suggesting a hike in interest rates any time soon. Christ they are squealing like pigs about the euro rate 1.5% at the mo. But, when inflation takes off in the states, 20% plus, rates will HAVE to be hiked and at that point, probably wise to take profits and large stakes from PMs. We could be 3-5 years from that threat. I agree about the farm, 2mil+ where I live in UK, but I have my eye on some french property to purchase in the future when the PMs pay off and (hopefully) the euro is a lot weaker vice pound today. Of more immediate concern is to time a big reduction in my exposure to the stockmarket as I ignored the warnings by Arabian Money editors in the summer!!
Also, something that Peter might cover in his research/newsletter. When talking about PMs, they keep comparing this bull run to the last one in 1970-1980 but ONLY from a technical viewpoint. I’d like to see some analysis that also takes into account the macro/fundamentals: basically, back then BRICs were non-existent on the world scene, the US did not have the astonishing debts it has now, and there was not so much of a threat of the dollar’s losing its status as a global reserve currency. So, I’m just curious how all these will play out especially w.r.t. PMs. I don’t have any bias here (maybe just for not losing my money
), just curious how all these things will play out.
Ed Note: A friend I had not heard from since 1979 contacted me this week through the website, and so I have been thinking of way back then. I visited him in America that year and believe me it was very much the same story: money supply let out of control, high debts and deficits and dollar on the way out! 31 years later the US has eliminated its only competitor on the world stage – but its finances are in a still worse mess. 1976-80 gold went up x8 and silver x15.
lids……as long as interest rates are lower than inflation we roll….can you imagine the situation it will take for people to demand that interest rates are ABOVE inflation given how far we are mentally away from that?…….of course, this doesn’t go on forever….i’m not dieing with this shiny stuff…..the only jewelry i have is an antique wind-up rolex.
maybe full blown inflation doesn’t get started until we get some economic traction…and after volker raised rates in the last go-around, it took us several years to delever back to square one…and this situation, andrew, is that one on steroids—-at least an order of magnitude greater….way more than even that, i’ll bet……and there is NOBODY that resembles Volker on the horizon.
lids….lock that french property up in a loan maybe owner financed ( give ‘em whatever the lowest downstroke u can negotiate) at the bottom of our deflation ride(2-4 years?) and ride the inflation gold wave for that next 1-3 yrs……..i’ll bet by then they’ll write at least a 3-5 year note with a balloon payment at the end….they will be desperate, believe me,… you ain’t seen nothing yet….remember, its not so much the PRICE….as it is the TERMS.
me, when i’m not off in my boat to the bahamas, i’ll be vacation renting every secluded on open water house i can find in my state of florida.