Gold News

Gold in Euros Jumps to Spring 2013 High as Swiss Abandon Franc Peg, Swiss Equities Drop 10%

GOLD in EUROs leapt to the highest price in 19 months in London trade Thursday morning as the single currency sank following the Swiss National Bank's shock decision to stop pegging the Franc at CHF 1.20 per Euro.
 
The peg was first imposed on 6 September 2011 – the day that global gold prices hit their current all-time peak of $1920 per ounce.
 
"Markets tend to overreact when confronted with such a surprise," said SNB chief Thomas Jordan at a press conference in Zurich on Thursday.
 
"The conditions we see today are not the ones that will be relevant for Swiss exporters in 2015. They should come back to a more reasonable level."
 
Any further rise of the Franc against the Euro, however, "could have serious implications for the economy," says UK consultancy Capital Economics, "given that Switzerland has typically sent nearly half of its exports to the Eurozone."
 
Eurozone equities rose 2% on average, but the Swiss stock market dropped 10%.
 
US crude oil contracts meantime rallied for a second session, nearing $50 per barrel – half the price of four months ago.
 
Gold also rose in US Dollar and Sterling terms, hitting 4-month and new 14-month highs just shy of $1260 and £830 respectively.
 
But for Swiss investors, gold dropped CHF 300 per ounce before steadying 12% down for the day at CHF 1110.
 
The Euro meantime lost 1% per minute for half-an-hour on spot FX quotations against the Franc, with bid/ask spreads widening sharply across all currency pairs.
 
Gaining 3.2% inside two hours, the gold price in Euros broke above €1075 per ounce – a level last seen during the Spring 2013 gold crash.
 
"[US] Fed normalisation and Dollar strength are considerable hurdles for gold," said Swiss bank and London bullion market-maker UBS in a new 2015 outlook ahead of the SNB news.
 
Cutting UBS' average 2015 forecast from $1200 to $1190 per ounce, analyst Edel Tully says lower bullishness in US gold futures – plus the 35% drop from 2011's peak – "should help limit the force behind a move lower."
 
Forecasting a 2015 average of $1215 per ounce, "There is some upside potential," reckons Japanese trading house Mitsui's analyst David Jollie, saying that "any downturn in equities or bonds...might potentially boost the gold price."
 
Besides abandoning its Euro peg for the Franc, the Swiss National Bank also pushed its key interest rates further into negative territory Thursday.
 
Sight deposit rates for commercial banks using the SNB were cut from minus 0.25% to minus 0.75%.
 
Three-month interbank rates are now targeted between minus 0.25% and minus 1.75%.
 
Annual yields offered by Swiss government bonds moved below zero on all debt to 7-year maturities Thursday morning as prices jumped.

Adrian Ash is director of research at BullionVault, the world-leading physical gold, silver and platinum market for private investors online. Formerly head of editorial at London's top publisher of private-investment advice, he was City correspondent for The Daily Reckoning from 2003 to 2008, and he has now been researching and writing daily analysis of precious metals and the wider financial markets for over 20 years. A frequent guest on BBC radio and television, Adrian is regularly quoted by the Financial Times, MarketWatch and many other respected news outlets, and his views from inside the bullion market have been sought by the Economist magazine, CNBC, Bloomberg, Germany's Handelsblatt and FAZ, plus Italy's Il Sole 24 Ore.

See the full archive of Adrian Ash articles on GoldNews.

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