Best of the Week
Most Popular
1. Market Decline Will Lead To Pension Collapse, USD Devaluation, And NWO - Raymond_Matison
2.Uber’s Nightmare Has Just Started - Stephen_McBride
3.Stock Market Crash Black Swan Event Set Up Sept 12th? - Brad_Gudgeon
4.GDow Stock Market Trend Forecast Update - Nadeem_Walayat
5.Gold Significant Correction Has Started - Clive_Maund
6.British Pound GBP vs Brexit Chaos Timeline - Nadeem_Walayat
7.Cameco Crash, Uranium Sector Won’t Catch a break - Richard_Mills
8.Recession 2020 Forecast : The New Risks & New Profits Of A Grand Experiment - Dan_Amerman
9.Gold When Global Insanity Prevails - Michael Ballanger
10.UK General Election Forecast 2019 - Betting Market Odds - Nadeem_Walayat
Last 7 days
China's Grand Plan to Take Over the World - 19th Nov 19
Interest Rates Heading Zero or Negative to Prop Up Debt Bubble - 19th Nov 19
Plethora of Potential Financial Crisis Triggers - 19th Nov 19
Trade News Still Relevant? - 19th Nov 19
Comments on Catena Media Q3 Report 2019 - 19th Nov 19
Venezuela’s Hyperinflation Drags On For A Near Record—36 Months - 18th Nov 19
Intellectual Property as the New Guild System - 18th Nov 19
Gold Mining Stocks Q3’ 2019 Fundamentals - 18th Nov 19
The Best Way To Play The Coming Gold Boom - 18th Nov 19
What ECB’s Tiering Means for Gold - 17th Nov 19
DOJ Asked to Examine New Systemic Risk in Gold & Silver Markets - 17th Nov 19
Dow Jones Stock Market Cycle Update and are we there yet? - 17th Nov 19
When the Crude Oil Price Collapses Below $40 What Happens? PART III - 17th Nov 19
If History Repeats, Gold is Headed to $8,000 - 17th Nov 19
All You Need To Know About Cryptocurrency - 17th Nov 19
What happens To The Global Economy If Oil Collapses Below $40 – Part II - 15th Nov 19
America’s Exceptionalism’s Non-intervention Slide to Conquest, Empire - and Socialism - 15th Nov 19
Five Gold Charts to Contemplate as We Prepare for the New Year - 15th Nov 19
Best Gaming CPU Nov 2019 - Budget, Mid and High End PC System Processors - 15th Nov 19
Lend Money Without A Credit Check — Is That Possible? - 15th Nov 19
Gold and Silver Capitulation Time - 14th Nov 19
The Case for a Silver Price Rally - 14th Nov 19
What Happens To The Global Economy If the Oil Price Collapses Below $40 - 14th Nov 19
7 days of Free FX + Crypto Forecasts -- Join in - 14th Nov 19
How to Use Price Cycles and Profit as a Swing Trader – SPX, Bonds, Gold, Nat Gas - 13th Nov 19
Morrisons Throwing Thousands of Bonus More Points at Big Spend Shoppers - JACKPOT! - 13th Nov 19
What to Do NOW in Case of a Future Banking System Breakdown - 13th Nov 19
Why China is likely to remain the ‘world’s factory’ for some time to come - 13th Nov 19
Gold Price Breaks Down, Waving Good-bye to the 2019 Rally - 12th Nov 19
Fed Can't See the Bubbles Through the Lather - 12th Nov 19
Double 11 Record Sales Signal Strength of Chinese Consumption - 12th Nov 19
Welcome to the Zombie-land Of Oil, Gold and Stocks Investing – Part II - 12th Nov 19
Gold Retest Coming - 12th Nov 19
New Evidence Futures Markets Are Built for Manipulation - 12th Nov 19
Next 5 Year Future Proof Gaming PC Build Spec November 2019 - Ryzen 9 3900x, RTX 2080Ti... - 12th Nov 19

Market Oracle FREE Newsletter

$4 Billion Golden Oppoerunity

The Swiss Franc, Euro or Gold ?

Commodities / Gold and Silver 2011 Mar 31, 2011 - 03:19 AM GMT

By: Adrian_Ash

Commodities

Everyone wants out of the Euro except Swiss exporters. What choice does the SNB have?

ULTRA-CHEAP MONEY has caused a whole heap of mischief to date. But really, this is getting silly...


"Switzerland may be better off adopting the Euro as the Franc's appreciation hurts exports," reports Bloomberg from Basel.

"It's a nightmare for everybody," says Thierry Stern, chairman of luxury watchmaker (and glossy-magazine benefactors) Patek Phillipe.

"We have to adapt. Something will come. I don't know when, but one day it will happen."

Industrialists are always in favor of devaluation, of course. Who do you think approved and drove Germany's Weimar inflation in the early 1920s? And with export sales accounting for one half of Swiss GDP – pretty much the same proportion as Germany enjoys – the thought of abandoning the Franc shouldn't really shock your local bar-room economist. The get-ahead Euro sure helped Germany extend its competitive edge inside the currency union. No wonder the idea's fast gaining ground, as Bloomberg reports.

The Franc is so "strong" right now, Swiss exports recovered barely 7.1% year-on-year at last reading. "In Germany, sales abroad jumped 15% in the same period," the newswire explains, pointing its finger squarely at the "safe haven" Franc. Rising by one-tenth vs. the Euro since March 2010, it's not even slipped against gold so far in 2011...! And what good's a currency that doesn't lose value?

Time was, as our chart shows, that the Euro itself was "as good as gold". Butting up against €10,500 per kilo for the first 5 years of the single currency's new century, gold didn't break out until mid-2005.

And see how gold's correlation with the Euro – the extent to which it moved in the same direction as the single currency, versus the Dollar, on a rolling 1-month basis – was pretty high throughout? It regularly peaked just shy of a perfect 1.0. Meaning that gold and the Euro very nearly moved exactly together. Only once did that correlation drop below minus 0.4, as gold and the Euro briefly moved in opposite directions.
                                                                                       
Now compare and contrast with that middle period, when gold and the Euro moved together more often still against the Dollar...but gold consistently out-stripped the single currency's gains, delivering sizeable returns to French, German and Italian owners. Since the start of 2009, in contrast, and especially since the start of 2010, the Euro and gold have spent a good deal of time going their own separate ways – mostly gold up, Euro down as it happens – taking the metal to new all-time highs for European holders.

History buffs may well recall that gold's current Dollar bull market – long-lived but far from steep enough to be called a "bubble" just yet – began just after the Euro was launched, right around the time the Swiss public voted to remove the Franc's famous gold-backing. Just as the gold sales which followed failed to knock the gold price lower (indeed, gold then turned higher after a 20-year bear market), so the loss of gold backing has so far failed to debt the Franc's safe haven appeal. So too has the Swiss National Bank embracing inflation, slashing its base rate to zero, and actively creating new Francs solely to dump them into the forex market in a bid to depress their value.

Seems you can't keep a "safe haven" down, in short. Not when retained wealth worldwide needs to escape active devaluation from money-printing and zero rates at home. What options are still open to the SNB besides killing the Franc entirely?

"I don't see any chance that the flow of money into Switzerland will change," says a New York money manager quoted by BusinessWeek. "People just want to get the heck out of the Euro." People except Swiss exporters that is.

Anyone caught in the middle might want to consider buying gold instead.

By Adrian Ash
BullionVault.com

Gold price chart, no delay   |   Buy gold online at live prices

Formerly City correspondent for The Daily Reckoning in London and a regular contributor to MoneyWeek magazine, Adrian Ash is the editor of Gold News and head of research at www.BullionVault.com , giving you direct access to investment gold, vaulted in Zurich , on $3 spreads and 0.8% dealing fees.

(c) BullionVault 2011

Please Note: This article is to inform your thinking, not lead it. Only you can decide the best place for your money, and any decision you make will put your money at risk. Information or data included here may have already been overtaken by events – and must be verified elsewhere – should you choose to act on it.


© 2005-2019 http://www.MarketOracle.co.uk - The Market Oracle is a FREE Daily Financial Markets Analysis & Forecasting online publication.


Post Comment

Only logged in users are allowed to post comments. Register/ Log in

6 Critical Money Making Rules