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‘Carnage’ In Financial Markets Boosts Gold As Safe-Haven Asset

By Neils Christensen of Kitco News
Thursday January 15, 2014 10:05 AM

(Kitco News) - Gold prices continued to show its safe-haven appeal as the Swiss National Bank unleashed, what one analyst described as, “carnage” in the marketplace.

Overnight, February Comex gold futures hit a four-month high of $1,261 an ounce after the Swiss central bank said that it would no longer support its peg against the euro. The central bank has maintained a floor of one euro to 1.20 Swiss francs since 2011.

February gold continues to hold on to most of its gains, currently trading at $1,259.00 an ounce, almost 2% on the day.

 “Nobody really suspected this move so people are looking for safe haven investments,” said Julian Jessop, head of commodity strategy at Capital Economics. “It just proves what we have been saying that gold is low enough to be an attractive investment for investors looking for some security.”

Ole Hansen, head of commodity strategy at Saxo Bank, agreed that gold will benefit as a safehaven investment, saying that investors are fleeing from the “carnage.” He explained that a lot of investors were short the Swiss franc against the euro in anticipation of continued support of the peg. However, investors had to quickly reverse those positions, creating massive volatility in the marketplace.

Hansen said gold, priced in euros, is a good example of the yellow metals safe-haven appeal throughout the eurozone. Overnight, gold/EUR rose to €1,083.22 an ounce, its highest level since June 2013. Currenty gold/EUR is trading at €1,082.40

Hansen added that investors could also be jumping into gold in anticipation of looser monetary policy from the European Central Bank. He said the timing of the SNB’s announcement that it would drop the peg suggests that they are anticipating a major shift in the ECB’s monetary policy.

“They could see that it is futile to keep buying euros when there is speculation that the ECB is going to release a bazooka into the marketplace,” he said.

There are growing expectations that the ECB will introduce a full-scale quantitative easing program, and announce that they will purchase about €500 billion in sovereign bonds at the Jan. 22 monetary policy meeting.

Although gold priced in euro has rallied following the SNB monetary policy decision, gold priced in Swiss francs has actually lost ground, falling almost 12% in the day. Gold/CHF hit a session low of CHF29,712 Wednesday and is now trading at CHF35,870

However, analysts at Nomura said that the news could actually benefit gold/CHF in the long-term.

“…The rally in CHF may have left gold in CHF terms looking attractive to this sort of investor type,” they said.

Along with dropping the currency peg, the SNB also lowered its deposit rate by 25 basis points to minus 0.75 percent from minus 0.25 percent. This means that banks have to pay to keep their deposits with the central bank.

By Neils Christensen of Kitco News; nchristensen@kitco.com

 

 

Disclaimer: The views expressed in this article are those of the author and may not reflect those of Kitco Metals Inc. The author has made every effort to ensure accuracy of information provided; however, neither Kitco Metals Inc. nor the author can guarantee such accuracy. This article is strictly for informational purposes only. It is not a solicitation to make any exchange in precious metal products, commodities, securities or other financial instruments. Kitco Metals Inc. and the author of this article do not accept culpability for losses and/ or damages arising from the use of this publication.
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