by Jim Clark
It’s been an exciting week for gold as it shot up $50 dollars to a four month high on Thursday, closing on Friday even higher at $1,280.00. This close is a $94 dollar gain for the new year! And once again, gold is surging along with the U.S. dollar, showing that gold is correlated with the dollar and is being sought aggressively as a safe haven from non-fiat currencies. This correlation has happened in recent years around major risk events. Let’s look at what this means for the yellow metal and some of the forces that have begun to drive up the price of gold.
I have explained before that the Central Banks are the drivers behind the post 2009 stock rally through monetary policy. By cutting interest rates, printing money, buying bonds, and verbal intervention, the Fed have done everything they can to push stock higher. So it isn’t fundamentals that drive the stock market, but intervention and manipulation. That is why even with bad economic news or turmoil both here and abroad, the market keeps rallying. Investors believe that the Fed will respond with more printed money, and the Fed has delivered. But the central planners are not omnipotent, you can’t create money out of thin air forever, and sooner or later, the chickens will come home to roost. In fact, this week, the world got a taste of what happens when the central bankers fail to live up to their expectations. It happened, of all places, in Switzerland, and it should be a preview of what happens when the Central Banks fail to deliver. The Swiss franc had been pegged to the euro. But the Swiss National Bank (SNB) removed the peg- likely in anticipation of quantitative easing coming from European Central Banks- and the result shocked the market. The Swiss franc rallied strongly against the euro more by than 20%. Gold prices rallied sharply as did U.S. Treasuries. Swiss shares fell more than 12%, and European stock markets fell, with an estimated loss of $60-$100 billion lost in a single day. Now the Swiss franc is one of the safest currencies in the world, but investors were buying “safe haven” gold Thursday and Friday. The revaluation of the Swiss franc versus the dollar, pound and euro is a harbinger of what will happen to those same fiat currencies versus gold in the coming months and years. The chart below shows what happened to gold after the SNB’s announcement.
This is a picture of how gold can protect your wealth in a market crisis.
Investing in gold is true diversification. When you buy from a bank or bank investment firm, they may recommend bonds, mutual funds, CDs, individual stocks, U.S. treasuries, Exchange Traded Funds, (ETFs) or a combination of all these things. If you ask an investment advisor about gold, they’ll sell you ETF “GLD” as fast as possible to keep your money there. All of these instruments reside inside the banking system. My point is that if all of your wealth is in the banks or stock market, a single financial crisis can wipe out much of your wealth. This is why at Republic Monetary Exchange we recommend having physical investment grade gold in your possession.
Update from last week’s report on a base put in for gold: As of the close of the market Friday, both the U.S. dollar index and the spot gold price finished very strong. In just under six months, since the dollar was last at 80.00 on its index, the dollar has gone up 15.9%. Now, as a result of the safe-haven demand returning to the market because of the unpegging of the Swiss franc from the euro, the spot price of gold is only down less than 1% from where it was when the dollar was last at 80.00 on its exchange. A base has been put in for gold. Act now while gold is at 4-year lows and the dollar is at 9-year highs. Now is the time. Call one of our Precious Metals Experts today.
Holdings in the SPDR Gold Trust, the biggest exchange-traded product backed by gold, surged the most in more than four years. See that story on Bloomberg.com by reading the article “Gold Assets in Biggest ETP Surge; Most Since 2010 on Haven Buying“.
I’ll be keeping a sharp eye on the market and I hope you do the same!