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Gold and the SNB
Gold has a nice bid so far today. There are so many reasons to own gold. I think a factor in today’s price action is the Swiss National Bank. This is a slow motion breaking story. There should be a resolution on central issues the SNB is now pondering in the next 24 hours. Depending on the out come it would a) justify the gold pop today and b) set the stage for another big leg up in AU.
All of the Swiss newspapers have the same story. The SNB is “actively” contemplating a currency peg against the Euro. I find this information to be bizarre. Over many years of watching the Franc and the SNB I have never seen anything like this before.
Apparently the SNB is reaching out to all sectors of the Swiss economy and politics to obtain “Consent” to implementing the Peg Policy (“PP”). That’s a very unusual way to conduct monetary policy in any country. It’s especially true for the Swiss.
The reason that the SNB is ducking responsibility by getting an unofficial “Okay” from the business and political leaders is that there is a very big risk for the Swiss to undertake a PP.
The Swiss aren’t stupid. The reason that the public result of the PP deliberations is being deferred until tomorrow is that they are waiting for the Merkel/Sarkozy meeting to end. There is some (small) possibility that the meeting will result in a “Nein” by Germany for a broad program to save the EU. The Swiss could not afford to set a Peg on Tuesday morning when there was some risk that a major negative step within the EU would occur a few hours later.
This is just whacky to me. A major historical step in Swiss monetary policy is dependent on a meeting earlier in the day? Have things evolved such that global monetary policy is changing on a day to day basis? It sure looks that way to me. Where could this go?
My GUESS is that the M/S meeting today will be happy talk about long-term budget discipline and a reaffirmation to deal decisively (Not really) with the problems with bigger (But not big enough) band aides. I’m of the opinion that outcome is pretty priced in. I don't think we will see an announcement that there would be a new large (Starts @ Euro 2 trillion) ) pan European debt offering to take pressure off of Spain and Italy. I also don’t see Germany/France folding the tent on the Euro experiment.
IF that is the result then it substantially increases the probability that a Swiss Peg is announced. (That would not be the case in the (unlikely) Nein/Non scenario.
What happens if there were to be a peg? Two shorter-term outcomes that I can think of:
I) The CHF is the “go to” safe have. But not if they peg themselves to the Euro. Some of the money that is currently parked LONG TERM in Switzerland will leave. (I think a lot of the short term hot money has found the exit by now). Where will those long term seekers of of a safe haven go, now that it ain’t so safe? There is only one option, gold. That is especially true for those who have Swiss Francs in the first place. They all love gold. Now they will have to love it more.
II) The next time there is a crisis on the table where will the money go? Not the Swissie. That would be a dead end. So the rest of the hot money will have less of a place to go. Once again it points to gold.
The “next time” I refer to is likely to happen by Friday. We are living day to day.
For the record
I want to say that should the SNB choose to set up a Peg it will not work. It will end with a staggering explosion. I can’t see a “solution” in Europe. Germany will not “Federalize” the debts of the peripheral states. Therefore the problems will not go away. The risks to Italy and France will grow as a result. As that happens, capital will have to move in the direction of Switzerland. That is always how this has worked in Europe. The SNB may buy some time with their Peg and force scared money into gold. But sooner or later the money will flow to Switzerland. This is especially true given that the SNB will be subsidizing the price of the Franc for that hot money.
Should we go down that road the SNB could be forced to absorb 300 billion Euros. The losses on those holding could be staggering for a small economy like Switzerland. In a recent blog I suggested:
The Swiss like to “Double Down”
A Peg would be the biggest double down in financial history.
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I want to say that should the SNB choose to set up a Peg it will not work. It will end with a staggering explosion.
By stating that, Bruce, you have also indicated what the smart money will do, even if they try a peg: keep flowing in!
Central banks are the worst market players in the history of mankind. Yes, they peg the CHF you'll see monye run out of that and go into sonthing else, probably the YEN. then the BoJ losses more money in the intervention game. If it goes into the high yeilders like the AUD, bad move. The RBA will cut, as Australia's economy is about to implode (retail collaspe x housing collapse + China slowdown = FUBAR).
It is looking like gold. If Obama goes insane and spends more, UST's get another downgrade govt goes into political chaos...and just chaos. Fed prints for QE3, USD gets hammered...and it's gold again.
Be watching the equity markets, the dow closed too high imo last session, the EUR is overbought, EZ indexes will an excellent gauge how f*cked the EZ is, the massive volatility swings should kick in next few days.
I need to raise a bit of cash. Should I sell some gold tomorrow or wait a day?
It would be interesting to see the Swiss people start to riot, and burn down their banks, and lynch their banksters and politicians. Yes, that would be quite the sight, and a very important one for every honest, ethical, productive individual on earth waiting for "the signal" to go apeshit and bring down the predators-that-be and predator-class.
http://www.youtube.com/watch?v=0lwrg2u_gCM
Gotta tell you a story
On a cold winters night
You'll be sailin for glory
Before you know what is right
So come over here now
I got a vision for you
It's my personal snake oil
It's just something I do
I'm the jester with no tears
And I'm playing on your fears
I'm a trickster smiling underneath this mask of love and death
The eternal lie I've told
About the pyramids of gold
I've got you hooked at every turn your money's left to burn
You'll be wanting a contract
You'll be waiting a while
I'd like to give you my contact
But that isn't my style
Well you only get one chance
And it's too good to miss
If I gave a lot to ya
Then I wouldn't exist
Greed, lust and angry pride
It's the same old, same old ride
The smoke and mirrors visions that you see are just like me
I'm a banker's face
With just a letter out of place
I know someone just like you knows someone just like me
El Dorado come and play
El Dorado step this way
Take a ticket for the ride
El Dorado streets of gold
See those over sold
You've got one last chance to try
So gone is the glory
And gone is the gold
Well if you need a story
I've come it has to be told
Well you can say I'm a devil
And I wouldn't say no
But out here on the dark side
Hey, on with the show
So is told
Big and bad and twice as bold
This ship of fools is sinking as the cracks begin to grow
There is no easy way
For an honest man today
Which is something you should think of as my life boat sails away
El Dorado come and play
El Dorado step this way
Take a ticket for the ride
El Dorado streets of gold
See those over sold
You've got one last chance to try
The efforts at Gold and Silver price suppression are expanding - even as prices resist these efforts and head upward.
Nonetheless all stops seem to be out in portraying Gold as a 'bubble' and not worth the 'risk.' This seems to be extending into mining shares big time. I've noticed major sell offs at end of day in SLW, GDX and GDXJ - with regular close on imbalance notices.
My suspicions that ANY proxy stock or ETF for precious metals (other than the 'approved GLD and SLV) are getting played with is supported by the following from Harvey'as Organ
http://harveyorgan.blogspot.com/
Here are some numbers for yesterday(Aug. 15, 2011) of short sales as a percentage of total volume traded: AEM 48%; GG 35%; RGLD 46%; AG 42%; NEM 58%; SLW 33%; PAAS 47%The performance of these stocks does not seem to reflect strong fundamentals and has (suprisingly) lagged the upticks in gold and silver prices..... Massive (and naked) short selling seems to be part of the MOPE approach - management of perspective economics. Image and illusion are more important than fundamentals. If you can't make the dollar stronger, make the alternatives look worse (and THAT is part of what's going on with the Swiss Franc and other currencies) The Swiss are - to some degree - rightfully afraid of what a flight to safety will do to them.
When Yugoslavia imploded the German Mark was the refuge of choice. If the Euro or $US tanks there is NO other currency with a big enough float to serve as a refuge for all the funds seeking a safe haven. What's left? Norway, Singapore? Or will China turn around and change its policies to suck up even MORE foreign capital - sealing the West's doom?
If Harry Browne were still alive he would be losing his shit over what the SNB has done (devalue ) and what they are about to do (peg to the piece of shit Euro). Nice work Bruce, thank you.
With Switzerland running at close to 400% of GDP in external debt I find it difficult to believe they are considered such a "safe haven" currency.
Source: CNBC article on the top 22 debtor nations
Google the Duffminster Times
Anton LeVay: "So, no: either the Euro somehow survives (probably through some sort of ECB QE program - see its recent purchase of Italy/Spain bonds) or we will see a return of the old nation-state currencies, with a European-wide policy of 'beggar-thy-neighbour"
Perfect. After today's meeting, my eta on the Drachma is nine months give or take a month.
Read your history don't be a moron. Why SNB? Simple...secrecy. We all know the end game as newly "liberated" sovereigns have to back stop their non euro money with precious. Italian banks r screaming already because gvt gets the precious not them. We're talking a thousand years of history here so hide all assets pay no taxes. EU is dead already. Move along.
hm, I read about SNB's action, let's wait and see what's up next. So far the folks at SNB - as well ass the Swiss economy have proven to be doing better than most economies did (a few did even better, Norway, Sweden etc.) and thats btw the reason they are now in deep shit.........but whatever will come, is Gold really the way out? Basically it's value is measured in USD or any other currency (hm, thats paper we don't trust in right?) - so whats next, pay your big mac with an ounce of Gold?
crazy times...
Great post, Bruce.
I'm not sure a peg will help much. Everyone will still trust Swiss banks more than say, Italian or Greek banks. Wonder why?
The underlying problem is implied government guarantee, the same thing that got Iceland, Ireland, and damn near everyone else in trouble. These flows need to be directed into investment banks only, with no form of insurance or guarantee. If the volk want to take investment risks with currency, all well and good, but never allow the losses to be socialized.
PS The bond vigilantes are still AWOL, but the gold and currency vigilantes are doing god's work;)
Hey fuckers*! I might WANT TO VOTE ON THAT ONE!
* ho... sorry boss.
So I read Bankrupt France (Sarkozy) and properous Germany (Merkel) concluded their secret meeting pledging to print trillion so the ECB can buy worthless Italain bonds...is this true?
German Coalition “Alarmed” By European Central Bank’s Bond Purchases
By Alex Ferreras
http://www.loansafe.org/german-coalition...
If so, brace yourself for some of the fastest gold price rises in history....maybe silver too, who knows?
Hmmm. I wonder where Merkel's retreat country is? Is the plane on the tarmac, fueled and warmed up, ready to fly. She won't be welcome back in the Fatherland.
sunny
Yes , it looks like Gold is the only substance that can become a Triffen good long term - hats off to FOFOA.
Although I hope silver will come along for the ride when the Indians can't afford Gold no more.
This is going to be awesome.
Except that gold isn't a good at all, Giffen or otherwise. Think "store of value" or "medium of exchange" and you're a little closer to the mark (or franc).
Yes I guess you are right - Gold is not really consumed - it just is and stays pretty much as.
God I can feel the Greed consuming me , my precious my precious my precio my pe my my my mine mine all mine................
Actually, Silver may well out-perform Gold in the long run. Its industrial applications make it, after all, a rather high-demand precious metal. Not to mention the blatant market manipulation by JPM & Co which could go BOOM pretty soon.
Gold is security. Silver may turn out to be the riskier, and more profitable, of the two.
Full disclosure: long Gold Bullion, long Silver bullion (x2). And quite pleased with that particular investment, if I may say so myself.
Anton , I like my silver maples but if this is a a monetory reset & the CBs are still running this shop - its got to be Gold.
Please; think. If Gold is re-monetized Silver will ride it's coatails; human psychology can't be cancelled by a new regulation. do you imagine all the Chinese householders are buying silver because they want to start an "industry" in their backyard? Surely you can realize that your silver coins will trade at a much higher relative price in the case you mention; which is not really very likely, by the way. It's much easier for a forty dollar item to double than a 1600 dollar item; human psychology, once again.
See Indian Subcontinent - I am not selling my silver............ but the SNB is producing RAW currency - The Big CHF fish will swim to Gold not silver , Indian & other Asian peasants will not be able to afford Gold - they will buy silver.
Silver is not a jewellery in India. Only Gold is. Silver is used as utensils.
I don't know how it was 100 years ago, but now it is only Gold.
So if Gold goes up, they will just buy less as previous generation was accustomed to.
you theory of India and silver is flawed.
Perhaps Fiddler - but the world keeps turning - $5000 gold will change the dynamic me thinks - although I admit I know little of Indian culture.
One way out is for the SNB to require that new money coming in to Switzerland stay out of CHF and be held in allocated physical gold at a Swiss repository. This would eliminate the pressure that new money is placing on CHF and would ensure the safety of the funds.
Swiss Francs held in gold? Physical gold? Swiss repository? I don't think you understand how the system works.
You can go to any bank and buy 10,000 CHF and just put them under your mattress. But that is not what is a work.
Many years ago it was possible to buy 1 billion Swiss Francs in one call that lasted 15 seconds. Today, one could buy 3b in 10 seconds. This "money" is not the kind you put under your pillow. It is on paper only. It is a dervative of the real money. It exists as a store of wealth versus other currencies. That value changes every second. None of these Swiss Francs are ever taken delivery of. They just roll over constantly. That is the interbank fx market.
There is not so much of these sythetic Francs in Switzerland. They are in London, Paris, Frankfurt, NY, Rio Tokyo, Singapore and Hong Hong.
So to answer your question; you can't lock this up and put it in a bullion vault. It is global. There is no vault big enough and they would have to be in every big city in the world. We are way past the point where there is actual delivery of things like gold. It's all on paper.
bk
another great idea bruce is not answering on. i myself do not have the answer on the implications but it would be great to read an answer from the author himself.
sell their gold...lol
Why would they not simply adopt a version of the Brazilian Tax?
From the FT (2009).
http://www.ft.com/intl/cms/s/0/7d275f18-bd05-11de-a7ec-00144feab49a.html#axzz1VDTgu5dB
Make it 5% and make it apply to deposits.
The Franc has been an important reserve currency for a hundred years. It has had an important role for the past 60. The Swiss are nuts to give that up.
A tax of 5% would work. But it would be the end of the Swissie as a reserve.
Absolutely stupid move.
Brazil, never was and will not be a reserve currency. What is right for Brazil, is not right for Switzerland IMHO.
Bruce, why do you say the BRL will never be a reserve currency?
Not within a decade, to be sure... but 18 months is the new decade, and ten minutes is the new 18 months... as you have observed above...
Let me re-state.
Brazil is a reserve currency today. The Brazilians have large money markets with lots of liquidity. They are a good credit. They can issue their own currency. So they meet all the requirements of a reserve. Some other central banks are already holding excess cash in Brazil.
But we are a very long way from when the Real can be a store of wealth as the dollar, yen Euro and Pound.
I do not think that Brazil wants to become a reserve. It is causing imported inflation. They do not like this.
Ten years from now? I can't figure out what's going to happen tomorrow.
b
Agreed. I don't believe this will occur. I don't know what kind of spin it's supposed to be, but I can't give it the status of a "real possibility".
It is simple. You print the francs, buy the Euros in the forex market, then take the Euros and buy gold. You trade your paper for a hard asset until people stop taking your paper. Gresham's law. The SNB gets wealthier. The citizens holding franc-denominated annuities, jobs, savings, etc. get poorer. You can cap the rate wherever you like as long as you like and you don't have to hold other people's fiat currency.
It is question of will, not of capability. Any national bank can dilute their currency infinitely if they so choose.
The Swiss are still discussing issuing a gold 'parallel' Swiss Frank, to circulate with the fiat Swiss Frank.
Any recent news of this possible new gold frank? Of course, if issued, the new gold Swiss Frank would attract a tidal wave of outside soverign fiat...and the non gold backed Swiss Frank would probably continue to be used while the new gold Swiss Frank would flee down hidey holes...
no news because it already exists, screwggle the term Goldfranken.
however no in use anywhere
I don't know what the SNB should do.... but people are looking for a safe haven to pile into and the SNB and the JPY have decided they do not want to be "it".
What this says is that people are very aware what is going on and they are going to be piling into gold and silver any minute now. Better getcha some.
seems right, the SNB doesn't want to compete for the hot money, or get in the way of the flight to quality in UST. no hot money for them (which is inflationary) interesting that it would go a public initiative, though in a small country its not as hard to gather consensus.
and it may be that the ECB will take some steps to strengthen their currency, think Nuke Athens. and then a peg looks pretty nice.
Switzerland commonly uses participatory democracy, so I don't think it is that odd for them.
Is the option to wait and see until all export products margins are squeezed to zero a better one than peg CHF temporarily to EUR? Any political or economic recommendations to solve the dilemma not to get stuck in recession in short-term and suffer structural loss of manufacturing capacity in mid-term AND keeping the Swiss safe haven currency (not pegged to EUR)?
this fofoa guy looks more correct everyday he had a great piece on euro a few weeks ago....euro was designed for this
Buy Credit Suisse CDS if stupid Hildebrand pegs to the EUR.
I wouldn't peg to a PIIG.
From Bruce's musings to God's ear; may Blythe suffocate from swallowing JPM cum.
The Swiss ironically have a huge hydropower,lumber,water,food and tech export economy which is getting murdered by the soft currency market. Swiss peg mainly helps dollar and euro and gold. Basically its a fiat Mexican devaluation or negative interest rate on Swiss franc holders.Classic death throes of a financial system. So,I still like the swissie over any other currency despite peg. It will be selected quickly as Europe collapses
Smeared lipstick or not, the swissie is still the prettiest pig in the pen
The Swiss ironically have a huge hydropower,lumber,water,food and tech export economy which is getting murdered by the soft currency market. Swiss peg mainly helps dollar and euro and gold. Basically its a fiat Mexican devaluation or negative interest rate on Swiss franc holders.Classic death throes of a financial system. So,I still like the swissie over any other currency despite peg. It will be selected quickly as Europe collapses
Bruce, pal
what is between you & SNB?.. did you short Swiss frank and got #ucked?
your analysis is getting more and more stupid..
here's example
##
Should we go down that road the SNB could be forced to absorb 300 billion Euros. The losses on those holding could be staggering for a small economy like Switzerland. In a recent blog I suggested:
###
HOW DO YOU THINK ITS GOING IMPLODE SWISS ECONOMY? do you understand how SNB acquired euros.. it printed ...
COST OF FUNDING IS ZERO( EXCL PAPER/WORK )...
its not money taken from taxes/economy/banking system .. it from thin air..
DO YOU UNDERSTAND HOW STUPID TO BET ON STRONG SWISS FRANK IF COUNTRY DONT WAIT THAT AND CAN PRINT OWN CURRENCY ?
whose players who bet on strong swiss frank gonna lose big time.. i think we will see day Swiss frank move lower against euro/dollar 8-10% ..
btw, what about japanese? well they do the same all time ,, they print yen and manage currency rate.. how fuck did they acquire 1 trln in $$$, they print yen, bought $$$ against yet, thus yen is lower..
remember 1998 , Mr juluian robertson got cleaned when yen moved 8% in day..
Bruce, you told you were in FX business.. i doubt it..
alx
ps
i know , i know you will say those swiss franks will return into swiss economy, so its inflationary.. thats currency controls are for..
That silly old pick I use is from 1983. The background is Citi bank's FX trading room at 399 Park Avenue. It was on the 6th floor back then. I sat in that seat for five years.
Deleted.