Currency Wars, Euro QE, and Historic Swiss Franc Move Propel Gold

Currency Wars, Euro QE, and Historic Swiss Franc Move Propel Gold

by Jim Clark

January 23, 2015

As of Friday morning, gold is up more than 10% and silver is up more than 16% since the beginning of the year. On the front page of its business section, The Wall Street Journal looked at the factors that are influencing bullish sentiment for precious metals in 2015.

  • Bubbly stock markets at or near record highs are making investors nervous.
  • There are fears that European QE could trigger inflation.
  • The Swiss franc’s euro peg has created massive volatility in the foreign exchange markets.
  • Collapsing oil prices have money managers looking to other commodities like precious metals.
  • Exchange-traded funds have increased gold holdings by 1.2 million ounces in January-the most since August 2012.
  • Large speculative investors are placing their most bullish bets on metals in five months.
  • The U.S. Mint has already sold a massive amount of American Silver Eagles. Could 2015 see another sales record for the mint?

Many market strategists are saying what we have said in the last two weeks, which is that the breakout levels of gold have placed a new floor for a gold rally to continue. And the recent gold rally breaks the rule that when the dollar goes down gold goes up and when the dollar goes down gold goes up. Gold is going up, even with the dollar highs. One of these experts is Peter Cardillo, the chief market economist at Rockwell Global Capital who states, “We look for a climb towards $1,325-$1,350 in the near term.” And Lindsey Group’s chief market analyst Peter Broockvar said he was bullish on gold. “The gold bear market is over and the bull resumption is just getting started, he said Wednesday. Boockvar also said in early January that gold would be the first to recover this year. (www.cnbc.com/is/10235692/.

When speculators start getting excited about precious metals, it begins to look like 2015 may be the beginning of bull rush in gold. So this is the time to protect your portfolio against a dollar crisis. Investors in Europe last week were caught unawares when The Swiss Central Bank decoupled their franc from the euro, causing the loss of billions in the foreign exchange markets in one day. Once a crisis hits, it is too late. Switzerland depegged its currency from the euro because the country had lost enough wealth buying up euros. Switzerland could not continue to subsidize Europe with its massive debt and deficit spending. They cut their losses. It is a lesson in why central banking does not work forever. Right now China is heavily invested in U.S. debt. What if China decides it can no longer subsidize our debt? What if they decouple the yuan from the dollar? Then the dollar is going to fall, and hard. If the Fed decides to do QE4 in order to continue propping up the stock market and the dollar, China will bear the burden of our debt, and China, like Switzerland, may decide to cut its losses.

Right now, both Europe and Russia are in currency crisis. On Thursday, the European Central Bank acknowledged that the euro is being sucked into a deflationary vortex. It reacted as central banks do by announcing a new 1.1 trillion euro quantitative easing program, which will further devalue the euro. The news gave the latest reason for investors to pile into precious metals, and they did, causing a rise in gold verses the euro.

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– I’ll be keeping a sharp eye on the market, and I encourage you to do the same!

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