Gold Surges in All Currencies in Tumultuous Week – XAU/CHF Up 5.5% WTD on Intervention and Euro Peg Concerns

Gold has fallen today in all major currencies except the Swiss franc which has fallen on continued speculation of pegging the Swiss franc to the euro. Gold is trading at USD 1,754.30, EUR 1,232.10, GBP 1,078.70, CHF 1,349.30 per ounce and 134,357.00 JPY/oz. Gold is 5.1% higher in dollars week to date and 6% higher in euros and 6.6% higher in pounds or to put it correctly these currencies have fallen in value against gold.


Cross Currency Rates

Gold’s London AM fix this morning was USD 1,755.00/oz, EUR 1231.23/oz, GBP 1077.35/oz and gold fell sharply after the fix.

As we said yesterday there is a risk of a correction in the light of the CME margin increase but smart money is positioning itself to buy on the dip.

Physical demand for gold internationally remains robust – especially in Asia – which will support gold. This is seen in the premiums remaining elevated in Singapore and Hong Kong. Gold’s discount in Tokyo fell to its lowest since the end of 2010.

UBS confirm this morning what we have been experiencing in terms of increased customer demand for gold and an increasing preference for allocated gold. 

UBS note that “the move to real assets such as gold in physical form signifies the heightened state of risk aversion at present.”

“The gold market remains underpinned by the movement to physical gold, which has persisted all week    . . .  European demand for small bars particularly, but also coins, remains very strong. As the week has progressed Asian physical demand, outside India, has been noticeably higher.”

The Swiss franc has fallen by another 0.4% against gold today and is down 5.7% week to date against gold. 

Pegging the franc to the euro would take time and would face steep legal and political hurdles – a change to the Swiss constitution would be necessary to begin with. 


Gold in Swiss francs – 5 Day (Tick)

A peg may not work as the SNB would have to provide liquidity to defend the peg and history shows (such as the European ERM) that pegs are rarely successful in the long term.

The Swiss franc’s reputation as a safe haven is gradually being lost and if a government and central bank are determined to debase their national currency and ensure it is a not a global safe haven then it is within their powers to do so.

Gold on the other hand has been empirically shown to be a safe haven and monetary asset.  


Swiss Francs Performance against G10 and Gold 

Unfortunately, many today know the price of everything and the value of nothing. Gold’s value is that it is a safe haven asset. These are not the claims of a vested interest but an empirical fact backed up by much international academic research including from Trinity College Dublin’s Dr Brian Lucey and Dr Constantin Gurdgiev.

The wise old adage that you "put 10% of your wealth in gold and hope that it does not work" has never been more apt.

Indeed, many would argue that given the scale of the global debt crisis and the real risk of contagion, that allocation could be higher. 

For the latest news and commentary on gold and financial markets follow us on Twitter.

SILVER 
Silver is trading at $38.32/oz, €26.85/oz and £23.56/oz. 

PLATINUM GROUP METALS 
Platinum is trading at $1,791.20/oz, palladium at $740/oz and rhodium at $1,775/oz. 

NEWS
(Reuters)
Spot gold reverse early losses on econ worries

(Reuters)
Rush to gold shakes up staid French market

(Bloomberg)
Gold Pares Best Week Since 2009 as Equities Rally, Contract Margins Rise

(MarketWatch)  
CME: Comex gold margins hiked to protect investors

(Reuters)
A rush for gold trusts in the market maelstrom

(The Economic Times)
Asia physical gold demand strong; Tokyo discount falls

COMMENTARY
(Reuters)
40 Years on from Gold Standard, Bugs Crow

(The Irish Times)
Charlie Fell: Economic environment near perfect for gold to shine

(King World News)
Dan Norcini: What to expect after short covering and margin hikes

(CNBC)
Bob Pisani: Should the World Go Back to the Gold Standard?

(Silverseek)
Ted Butler on Silver – The Public Be Damned

(Reuters)
Precious Metals Rising Like a Hot Knife Through Butter –

(The Telegraph)
Desperate Swiss eye euro peg to repel safe-haven flood

 

 

Mark O'Byrne

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