- January 15, 2015
- Category: Stocks
It’s been a momentous week for gold, and it’s not over yet. Spot gold jumped more than 2% on Thursday, extending gold’s now five-day rally – its longest rally in over six months. The move came after the Swiss National Bank (SNB) abandoned its national currency cap of 1.20 Swiss francs per euro, sending markets into a frenzy. Economists and news outlets have described it as “carnage”, “seismic”, a “tsunami”, a “shock move”, and a “Swiss bombshell”. The move pushed investors towards gold as a safe haven.
It’s also important to note that September 6, 2011, the day the SNB initially announced the currency cap, was also the day gold hit its all-time highest price of $1,921.50/oz.
“Nobody really suspected this move so people are looking for safe haven investments,” said Julian Jessop, head of commodity strategy at Capital Economics. “It just proves what we have been saying that gold is low enough to be an attractive investment for investors looking for some security.”
The Swiss franc skyrocketed almost 30% after the news broke, while Swiss stocks lost over 100 billion francs ($98 billion USD) in value, their biggest one-day drop in 26 years, Reuters reports. U.S. stocks fell for the fifth day in a row, with the S&P 500 closing at below 2,000 for the first time in a month.
Why did Switzerland cap its currency’s value?
As the Wall Street Journal explains, during the ongoing European debt crisis, the Swiss franc rose sharply in value against the euro. Because the franc was so strong against the euro, it cost more euros for other eurozone countries to buy Switzerland’s exports, which threatened Swiss manufacturers. To curb the situation, in September 2011 the SNB set a goal to keep its currency from rising beyond 1.20 francs to the euro. Over time this became more and more expensive to do, as it required the SNB to purchase assets priced in non-franc currencies, mainly the euro. The SNB has now ditched the currency cap, even after repeatedly assuring the public that it would keep and defend the plan.
“The SNB probably expects the ECB to launch QE next week and along with the Greek elections coming up, it would make it pretty tough on the Swiss to keep bidding the euro. So they have abandoned the cap and cut rates deeper into negative territory,” said Jonathan Webb, head of FX strategy at Jefferies in London. Last week we touched on this turmoil in Europe, which has driven safe-haven demand for gold.
Trend forecaster Gerald Celente: “Gold should be over $2,000 an ounce.”
Gerald Celente, trend forecaster and publisher of the Trends Journal, told Kitco News in an interview “We believe it’s a good year for gold, and not a very good year for equity markets.” He also said “Gold should be over $2,000 an ounce.” Why?
Celente believes central banks are trying to suppress gold prices to give the illusion of a stronger global economy. “It is not in the best interests of the central banks to wake up the people who have been saying: ‘look, we’ve been printing all this digital money backed by nothing, printed on nothing, and it’s not worth much and that’s why gold prices are high,’ ” he said.
He does not think the U.S. economy is improving, telling Kitco “There’s nothing to stabilize the dollar’s strength. We’re not seeing it in manufacturing, we’re not seeing it in production and when we saw the latest unemployment numbers – yeah, they created more jobs, but wages went down.”
Celente also spoke of what he calls “Bankism”, a phenomenon he believes came about with the so-called “too big to fail” financial firms during the 2008 financial crisis. He thinks only the banks are currently benefitting from central bank policies. “Now when you put your money in the bank, you get virtually nothing back because interest rates are so low…” he said.
See the full video interview here.
Conclusion
The SNB’s surprise decision to end its currency cap demonstrates just how unpredictable markets and governments can be, as well as gold’s lasting attraction as a safe-haven asset. Celeste’s comments, although only opinions, shed light on the detrimental effects of inflationary monetary policy. Gold, a tangible asset that has no counter-party risk, can be your hedge against potential inflation and global economic crises. Unlike traditional paper-based assets, it tends to hold its value or even increase in value during troubled economic times, offering simple protection and true diversification for your portfolio and net worth. If you’d like to own physical gold or other precious metals, American Bullion makes it fast and easy. Contact us today to purchase gold and silver coins or bars for secure delivery to your address, or even add gold to your IRA or former 401(k). We will handle all of the details and make the entire process hassle-free. Call today at 1-800-326-9598 or request your no obligation Free Gold Guide by filling out the form at the top of this page.