Is the Swiss Franc to Euro Peg Bullish for Gold?
On Tuesday, gold (NYSE:GLD) reached a new all-time nominal high of $1921.15 before falling back below $1900. Silver (NYSE:SLV) futures for December delivery retreated 2.8% to close at $41.86. Even though gold and silver suffer pullbacks from time to time, the bullish case for precious metals (NYSE:DBP) continues to build. Yesterday, the Swiss National Bank decided to surprise global markets and give investors another reason to buy gold and silver.
The Swiss National Bank announced it would buy unlimited quantities of foreign currencies to prevent the franc (NYSE:FXF) from rising above 1.20 Swiss francs to the euro (NYSE:FXE). This decision comes as the Swiss franc has experienced rapid appreciation due to investors seeking a safe-haven currency. Although the move is an attempt to increase exports and stabilize its economy, it gives investors another reason to seek out hard safe-havens such as gold and silver. Peter Fertig, a consultant for Quantitative Commodity Research said, “All in all, Switzerland is now on a quantitative easing policy in the foreign exchange markets. If the Swiss franc is no longer a preferred safe haven due to intervention by the SNB, it will have a positive impact on the demand for gold.” Comparing the Swiss announcement to quantitative easing brings back pleasant memories for gold and silver investors. Since the Federal Reserve announced its first quantitative easing program in November 2008, the price of gold has more than doubled. Furthermore, the price of silver has quadrupled since QE1.
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The Swiss franc is not the only currency in question of its safe-haven status. Readers will recall, last month the United States received its first ever credit downgrade after an ugly debt ceiling debate. Even though the peg between the Swiss franc and euro seems to give investors one less option of a safe-haven, not everyone believes this is a bullish sign for gold. Sebastien Galy, a senior currency strategist at Societe Generale SA said, “Those long the Swiss franc are likely long gold, so both positions are cut at the same time. The move by the Swiss bank suggests that we will go risk on now, which is not good for gold.”
Investors looking to hold precious metals in their portfolio may want to consider gold plays such as AngloGold (NYSE:AU), Newmont Mining (NYSE:NEM), or Market Vectors Jr Gold Miners ETF (NYSE:GDXJ). Hot silver plays include First Majestic Silver (NYSE:AG),Endeavour Silver (AMEX:EXK), and Global X Silver Miners ETF (NYSE:SIL).
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Disclosure: Long AGQ