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Gold and the Swissie.

  • Written by Syndicated Publisher 36 Comments36 Comments Comments
    November 8, 2011

    Lots of things tugging on the price of gold today. For me, the most important factor was the threat of another devaluation of the Swiss Franc. The headlines from the Swiss papers:

    .

    .

    The last time we had headlines like this the EURCHF was 1.05. Not long after it was 1.21. So it’s not surprising that this time around folks ran for the hills in fear. The CHF lost 2.3% against the Euro today on just the SNB threat of “pegging up”.

    Anyone who was still hanging onto the notion that the CHF was a safe haven, puked with the headlines. So more money went to gold.

    If we actually do get a re-peg it would add even more fuel onto the gold price. I think we will be looking 1,900 in the rear view mirror if the SNB ups the anti.

    Hildebrand has balls to leak this story over the weekend. His timing looks like a deliberate insult to the G20. The final communiqué had this to say:

    We affirm our commitment to refrain from competitive devaluation of currencies.

    Of course Switzerland in not in the G20 so they can ignore this altogether. They can do as they please. However, this time there might be a bit of outrage from their neighbors north, south, east and west.

    I’m not sure who fired the first missile in the developing global currency war. Switzerland has already thrown up its fair share. They’re going to get hit back if they launch another.

    We are (again) at zero visibility on the Franc. Better to “stay away” from this one. The flip side is that the gold story gets stronger and stronger. Look for a second tier (but cash rich) Central Bank to make an announcement of a big gold buy. After all, where else would a CB put cash these days?

    Images: Flickr (licence attribution)

    About The Author – Bruce Krasting

    I worked on Wall Street for twenty five years. This blog is my take on the financial issues of the day. I was an FX trader during the early days of the ‘snake’ and the EMS. Derivatives on currencies were new then. I was part of that. That was with Citi. Later I worked for Drexel and got to understand a bit about balance sheet structure and corporate bonds from Mike Milken. I was involved with a Macro hedge fund later. That worked out all right, but it is not an easy road. There was one tough week and I thought, “Maybe I should do something else for a year or two.” That was fifteen years ago. I love the markets. How they weave together. For twenty five years I woke up thinking, “What am I going to do today to make some money in the market”. I don’t do that any longer. But I miss it.

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