Switzerland and Gold: What Next?
By Dan Popescu
Published Apr 21, 2015
“Money is sound when it fulfils its functions as a means of payment and store of value as smoothly and reliably as possible in people's everyday lives. Sound money retains its value and is generally accepted. It also makes an important contribution to social harmony and material prosperity. Sound money is therefore a central pillar of our [Swiss] society. The mandate of monetary policy is to ensure that money remains sound. Consequently, the Swiss National Bank (SNB) bases all of its activities on this mandate.” - Thomas Jordan, Chairman of the Governing Board of the Swiss National Bank, Nov. 23, 2014 just before the Gold Referendum on Nov. 30, 2014
I expected a positive outcome in the Swiss Gold Referendum (Nov. 2014) to create a tsunami in the gold and foreign exchange markets but didn’t expect the tsunami created by the unpegging of the Swiss franc (Jan. 2015); especially after the absolute assurances given by the Swiss National Bank (SNB) during the referendum campaign. If the negative vote in the Swiss gold initiative was not a surprise, the de-pegging of the Swiss franc only a month and a half later was. How can we explain such a reversal so short after a campaign by the SNB against gold? We must remember that during the referendum campaign the SNB and its president strongly defended the peg and promised it will continue. I expected the Swiss Gold Referendum to be the big shock in the central bank sector and the gold market, but only if passed and it didn’t. However, the consequences of the initiative, I am sure, helped prepare the “big surprise” event that was the lifting of the cap by the SNB just a month and a half later. The strong support for the initiative scared the banking industry and the SNB and, even though defeated, I think it affected in some way the central bank. It was a message from the people.
Was the de-pegging really so unexpected? Or was the timing of the de-pegging the only surprise? Several analyst were saying repeatedly that the peg was unsustainable and that its end was just a matter of time. Still according to Minyanville “The EURCHF fell about 16% in today's trading [Jan. 15, 2015]. To put things into perspective, depending upon the historical range, that is at least a 35 standard deviation event. In terms of the probability of seeing such an event, a 25 standard deviation event is likely about once every 100,000 years”. What did change in such a short time to make the SNB change its mind and surprise in such a way the foreign exchange markets? I personally don’t see any valid argument just excuses. In my opinion, it just proves that those in charge of the central banks have no idea of what they are doing. Some even admit it in private conversations and others even hint it publicly with words like “we are in unchartered territory” and “we learn by doing”. Remember that before becoming president of the SNB, Thomas Jordan wrote a paper in 1999 on “Why Switzerland should never peg to the Euro” then doing the opposite once president of the SNB, and reversing again in a surprise move that shocked the global foreign exchange markets. Not only that but it also started a chain reaction of devaluations and interest rate drops by central banks worldwide. Currency wars at its best? I certainly think so. If the Swiss did not shock the global central bankers with the gold initiative, the de-pegging of the franc certainly did.
Continued at:
https://www.goldbroker.com/news/switzerland-g...t-next-762
By Dan Popescu
Published Apr 21, 2015
“Money is sound when it fulfils its functions as a means of payment and store of value as smoothly and reliably as possible in people's everyday lives. Sound money retains its value and is generally accepted. It also makes an important contribution to social harmony and material prosperity. Sound money is therefore a central pillar of our [Swiss] society. The mandate of monetary policy is to ensure that money remains sound. Consequently, the Swiss National Bank (SNB) bases all of its activities on this mandate.” - Thomas Jordan, Chairman of the Governing Board of the Swiss National Bank, Nov. 23, 2014 just before the Gold Referendum on Nov. 30, 2014
I expected a positive outcome in the Swiss Gold Referendum (Nov. 2014) to create a tsunami in the gold and foreign exchange markets but didn’t expect the tsunami created by the unpegging of the Swiss franc (Jan. 2015); especially after the absolute assurances given by the Swiss National Bank (SNB) during the referendum campaign. If the negative vote in the Swiss gold initiative was not a surprise, the de-pegging of the Swiss franc only a month and a half later was. How can we explain such a reversal so short after a campaign by the SNB against gold? We must remember that during the referendum campaign the SNB and its president strongly defended the peg and promised it will continue. I expected the Swiss Gold Referendum to be the big shock in the central bank sector and the gold market, but only if passed and it didn’t. However, the consequences of the initiative, I am sure, helped prepare the “big surprise” event that was the lifting of the cap by the SNB just a month and a half later. The strong support for the initiative scared the banking industry and the SNB and, even though defeated, I think it affected in some way the central bank. It was a message from the people.
Was the de-pegging really so unexpected? Or was the timing of the de-pegging the only surprise? Several analyst were saying repeatedly that the peg was unsustainable and that its end was just a matter of time. Still according to Minyanville “The EURCHF fell about 16% in today's trading [Jan. 15, 2015]. To put things into perspective, depending upon the historical range, that is at least a 35 standard deviation event. In terms of the probability of seeing such an event, a 25 standard deviation event is likely about once every 100,000 years”. What did change in such a short time to make the SNB change its mind and surprise in such a way the foreign exchange markets? I personally don’t see any valid argument just excuses. In my opinion, it just proves that those in charge of the central banks have no idea of what they are doing. Some even admit it in private conversations and others even hint it publicly with words like “we are in unchartered territory” and “we learn by doing”. Remember that before becoming president of the SNB, Thomas Jordan wrote a paper in 1999 on “Why Switzerland should never peg to the Euro” then doing the opposite once president of the SNB, and reversing again in a surprise move that shocked the global foreign exchange markets. Not only that but it also started a chain reaction of devaluations and interest rate drops by central banks worldwide. Currency wars at its best? I certainly think so. If the Swiss did not shock the global central bankers with the gold initiative, the de-pegging of the franc certainly did.
Continued at:
https://www.goldbroker.com/news/switzerland-g...t-next-762
