Swiss escalation of currency wars to boost gold

flovestock

September 6, 2011, 9:23 AM.

Switzerland’s move to put a floor under the euro/franc exchange rate marks a new escalation in currency wars that ultimately will benefit  gold, according HSBC analysts.

David Bloom, Paul Mackel and Karen Ward  write Tuesday that:

“…Swiss authorities are now committed to use the central bank’s balance sheet to sell CHF and in turn buy EUR. They are most likely to buy core Eurozone debt. This keeps the EUR bid but would also have the distorting impact of widening the spread between the core Eurozone bonds and the periphery. This may be interpreted by the market as a sign of distress. It is possible that this further undermines relations between the core and the periphery. This is a risky policy for the Swiss: just at a time when the Eurozone’s future is most uncertain, it would leave the CHF massively exposed to the Eurozone’s fortunes.

The analysts add that:

In effect, as we hit the zero bound in interest rates, central banks have shifted to exchange rate policy aiming to have the weakest currency in town. This is a game that everyone can’t win…but that doesn’t mean they won’t keep trying. Those believing they don’t have to enter the war get sucked in via the actions of others. One currency that will benefit most from this is the one that will not complain …Gold GC1Z.

-Tom Bemis

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