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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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The Swiss Francs will return to the economy and cause unwanted inflation. Just like you said.
A 500b economy prints 400b in new money to support an fx rate that can't be supported?
Yeah, that would wreck the economy.
what if it were invested in gold?
hahahah)) explain please how currency controls can stop me from selling earlier printed CHF which I (say) have bought before? e.g. 1000 CHF per head per day? :)))
are you mentally impaired?
if somebody sell CHF, thus CHF is weaker.. so .. that is fuckiing point of manupulation. you can sell '1000 CHF per head per day' by 100 times , it will be even better..
only problem is if franks will return into Swiss economy, so that is problem..
so Swiss central bank/gov can :
#1 impose currency control ala Brazil
#2 impoze deposit tax on foreign money.. that was done already in past..
if tax is 5-10% per year, you will think twise to import franks back in to Swiss bank..
listen pal,, dont talk about things you have no idea..
eat your burger, wash down Coke and be happy..
alx
hahahha))) it is just your emotions, sir) you have nothing to say.
Obama just announced the US Dollar will be pegged to the Zimbabean Dollar. Only solution is to be long Gold and Paper companies.
I have gold looking for a good time to jump into silver
Has the time come?
You could try to time it, but we have violated the $40 level and may never return. There are diminishing returns to this price manipulation.
I recently did the same because I was concerned about how to exchange a gold coin worth $xxxxx in a chaotic environment.
Another ZH reader also shared a story about gangs in post USSR days kidnapping family members of people known to possess gold. Having some silver and some surveilance and detection routes are probably a better idea than selling gold and marching straight home. One doesn't want to be paranoid, but widespread hunger should induce paranoid in anyone with food. In the book, When Money Dies, it read that in Weimar Germany, hunger turned neighbor against neighbor, and distrust was the norm.
could all this be intentionally done to get the euro backed by gold? new currency? US dollar finished, no QE whatever? so many questions!
Best case scenario: (still pretty grim)
Whatever they are doing, all the central banks and governments are cooperating in kicking the can and buying gold slowly. I doubt the USG would go along if it meant the dollar is finished. I doubt the Chinese and Russians would be bitching and whining so much if they thought this would end with the Americans being destroyed. This country will come out on top, but the people, especially the middle class who don't own gold, are going to be financially destroyed.
All the swiss newspapers are just propaganda tools, like their brethen in any other country. They are all frontpaging the europeg story to keep the CHF's head underwater.
But the SNB will fail, as the stronger hands know it's just a bluff.
The SNB is holding a pair of fives.
Gold is holding a royal flush.
There are other rumours about a STRONG EURO (exit Irland plus the Southern underbelly) and enter Switzerland,Denmark,Norway and Sweden. Maybe an interesting longer term project.
Denmark is already EURO-pegged. As for Sweden and Norway, forget it at this point. Without a major domestic crisis, this is not even a starting point for a discussion there.
No Euro for us. The bankster bought politruks want it but the issue is politically dead in Sweden. At least for this decade and as we have already seen monetary policy is now a weekly event.
I have also heard this as a possible way out of the problem.
We would have a two tiered Euro, North and South Euros. The Swiss would link to the strong Euro.
This is rather farfetched at this point. I see no evidence that the politicians want something like that. It would all fall on the backs of France and Germany.
But a year from now this could be a distinct possibility.
Could call the northern currency the GERMO and the southern currency the PIIGSO.
Could call the northern currency the GERMO and the southern currency the PIIGSO.
A 'strong' and a 'weak' Euro, you say? Not a chance.
I mean, with all due respect, I live in Europe - most countries would rather go back to their respective pre-Euro currencies (and all would devalue vs the Euro or DM) rather than have a two-tier system like that.
Italy, Spain, Greece - to name a few - would rather tell the European Bureaucrats to get lost (and go back to Lira, Pesetas and Drachmas) than to belong to a second-tier club. Not to mention it could kick-start their economies back into shape AND get rid of most of their debts in one fell swoop.
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'.
But of course, I may be wrong and the above rant is nothing more than pure speculation on the part of an amateur. Make of that what thou will.
I think I used the word farfetched. But it is still an option.
I think Greece is out. They need to go back to the Drachma. I'm not sure sure about Spain and Italy. These two countries need a break today. A two tiered euro system would do them a lot of good. More than a return to Lira and Pesetas. The germans dutch french would all hang together.
I would not rule out anything. This could get very messy if the EU economy hits a big bump (it is). As unlikely as a two tier is, it is still not off the table.
Did you think it possible that the SNB would peg the CHF to the Euro a month ago? I sure didn't. Things are happening at hyper speed.
b
Bullshit
productive industry is capital intensive, with falling currencies, there will be no capital just when they need it most
The problem with many capital rich societies spitz is that they blow it on crap.
I spend much of my time now on Irish os maps with different dates - its quite some spectacle
shop.osi.ie/
Go to the historic archive window / then the Browse maps section - pick any rural area with road access lets say 10 kms north of Cork city and shuffle the 1995 - 2000 - to 2005 dates - mushrooms fucking mushrooms everywhere - my once beautiful country has been destroyed by cheap German credit & greedy stupid Irishmen.
The malinvestment is off all known scales.
Vandalism on such a scale is awe inspiring in its ferocity
The politicians won't "want that" until they've been told to do so. Until then they back-pedal, deny, and obfuscate whatever the day requires.
Good luck getting the Swiss to vote on that. Never going to happen. Although they were foolish enough to vote against their gold standard in 2000, so WTFDIK.
I dont believe there was a vote in 2000.
It had to be done to be a member of the IMF.
To be a part of the IMF your currency cannot be backed by gold.
CH ain't what it used to be.
Yes, they dumped the gold standard. But that was not the beginning of the downfall of the confederation.
2002 CH joins the UN
1992 CH joins world bank and IMF
1971 women are granted right to vote in federal elections
Who or what is "CH"?
Confederation Helvetic.
ROFL
Like the article but this is the first time I hear about a peg by the Swiss. Where did you get that rumor? Or is it just a personal presumption?
Makes sense in a way considering the high inflation in Switz'd caused by the unatural influx of capital.
Countries with the best economic policies suffer the most during downturns because they get the most business investments before the crash. The Swiss will also suffer because of the folly of their neighbors.
NZZ.com gives you German language. Covert using Google. Or,
Swissinfo.com for English (but terrible coverage)
The stories have been running since Sunday. The story first broke last Thursday. EUCHF up about 10% on the rumor of news.
Rumor of News, I'll use that.......
Where did you get that rumor?
Ummm.....the SNB's been floating the idea publicly for a week now?
LOL
And for a moment I thought I'd maybe just dreamed about it a few nights ago?
Sell side analyst candidate.
Buy gold be happy and sleep well at night.
Punto!
Pulau,
At dese' prices???, u cracy mon?............LOL
"Gold will make you sleep well but silver will make you rich."
I heard that somewhere.
There you have it:
Nein!
Youtube-Dramatization:
http://www.youtube.com/watch?v=YTaDfG_cuWI
Hasn't someone mentioned already, that the peg would be illegal?
The SNB has long been the holy cow in Switzerland at least as long as they were regularly distributing money from their trading profits to The Confederation and the Cantons.
These times seem to be over and their image has been somewhat tarnished recently after:
1. selling off 1400 T of the Swiss Gold stash between 250 and 800 $ with the argument of 'diversifying into more productive assets' (read USD and EUR). What a joke.
2. Then last year they were buying up hundreds of millions of EUR to weaken the SFR, which was another epic blunder.
So now is we come to
3. Pegging the SFR to the EUR.
Good luck with that, because normally on three you are out.
But of course they are part of the CB-pack and don't have too much choice.
in fact it is. however the always brilliant Mr. Hildebrand mentioned that a temporary peg would be ok. I know many people who would immediately file a law suit against the SNB.
Really? That would be interesting. I hope it happens.
No just a permanent peg. Temporary pegs are ok.
Since when is temporary idiocy a good thing?
Kinda like the temporary sur charge on telephones institiued to pay for the Civil War or WWI... whatever. Or maybe like Nixon's temporary suspending of gold convertability?
Or maybe you got a good point there.
@BK why not impose negative interest rates for incoming capital, easier and less costly for the country?
The already have. The flooded the banking system with 90b of CHF in just one week. Interest rates on Euro Swiss deposits (not domestic) are now negative out to one month.
or what about Mercury,s idea on another thread to print money and buy gold.
Bad move by the Swiss. It's like they see everyone circling the drain and feel the need to join in. Why?
What's a PP?
Sorry. A "Bruceism".
It was short for Proposed Peg.
A reasonable solution would be a sovereign wealth fund:
http://www.microsofttranslator.com/bv.aspx?from=&to=en&a=http%3A%2F%2Fwww.nzz.ch%2Ffinanzen%2Fnachrichten%2Fmit_schweizer_staatsfonds_gegen_starken_franken_1.11223443.html