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Global Central Bankers Suffer Stinging Rebuke from Swiss
Dangerous Currency Wars Unfolding as World Chokes on Fiat Money
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Welcome to this week’s Market Wrap Podcast, I’m Mike Gleason.
Well, another big week for the gold market. Gold prices surged Thursday on the heels of a surprise announcement from the Swiss central bank.
The Swiss National Bank shocked financial markets Thursday by ditching its policy of capping the Swiss franc to the euro. The abandonment of the cap, which essentially pinned the franc to 1.20 to the euro, prompted a 20% collapse in the euro versus the franc. It was the biggest single day depreciation in a major currency of all time.
Swiss authorities apparently decided that their policy of pegging the franc to the troubled euro was becoming too costly and too risky in light of the European Central Bank’s foray into irresponsible quantitative easing. The European Central Bank is expected to unveil yet another stimulus program next week. The Swiss have made it clear that they want no part of it any longer.
The surging franc helped lift gold prices. The yellow metal gained $34 on Thursday as prices broke out to a fresh 4-month high. As of this Friday recording, gold trades at $1,277 an ounce, moving up again today and now up 4.3% for the week. So far in 2015 gold is up nearly $100 in just the first two weeks of the calendar year.
Turning to silver, the white metal wasn’t quite able match gold’s strength on Thursday following the Swiss announcement. It closed Thursday slightly below its December high mark. But it’s still up sizably on the week and has outperformed the yellow metal overall. Silver prices are surging again this morning and currently come in at $17.50, good for a weekly advance of 5.9% and now show a gain of 12% on the year.
As for the platinum group metals, platinum is posting a 3.1% gain this week, with prices now coming in at $1,270 per ounce. Yes, platinum is now slightly below the gold price for the first time in over a year. Palladium, however, is moving in the opposite direction and the story is completely different compared to the other precious metals. The quixotic metal shows a decline of 7.1% week over week to trade at $747.
We also saw some notable weakness in the copper market earlier this week, which could explain some of the weakness in palladium – as both are heavily influenced by strength, or weakness in the industrial sector. Copper prices had plunged by as much as 9% by mid-week before recovering some of those losses on Thursday. Copper is rallying today off of a 5-and-a-half-year low seen earlier in the week and currently trades at $2.78 a pound.
“Dr. Copper” could be signaling that there are some undiagnosed underlying problems in the economy. Thus far, capital markets have been little affected by the extraordinary drops in copper, crude oil, and other commodities. Most mainstream economic commentators remain steadfastly bullish. Yet we have seen a few hiccups in the junk bond market along with some increased volatility in the stock market so far in 2015. Further downside risk exists in equities, and that downside could be severe if copper is serving as a leading indicator of a coming recession.
Copper itself offers investors a contrarian hard asset play at these beaten down levels. Here at Money Metals Exchange, we offer copper bullion rounds, along with copper pennies. We sell these pre-1983 coins for very near the actual melt value of copper.
But so far this year, the metal that’s gathering the most upside momentum is gold. The possibility of a price spike due to turmoil in the global currency markets certainly exists. The euro and the Japanese yen are both in trouble, and we probably haven’t heard the last of the Russian ruble crisis.
Gold gained against most foreign currencies last year and is advancing against all major currencies this year, including the U.S. dollar. Gold and silver prices are advancing in spite of continued dollar strength on the foreign currency exchanges. When the dollar finally turns down, that could really light a fire under the metals markets.
We don’t know what the particular catalyst will be. Perhaps it will be a new policy statement from the Fed or exogenous events beyond its control. Perhaps a country that now pegs its currency to the U.S. dollar will break free just like Switzerland did from the euro.
In fact, some currency analysts have speculated that Hong Kong may be interested in de-linking from the dollar. There’s an outside chance that a country may move to restore gold backing to its currency, which would obviously be huge for the gold market.
As many of our listeners know, a nationwide referendum to force the Swiss National Bank to buy massive quantities of gold failed late last year. Ironically, the Swiss National Bank has moved to strengthen its currency anyway by divorcing it from the euro. That said, Swiss officials have made it clear that they don’t want the franc to serve as a global safe haven asset.
The central bank on Thursday lowered the interest rate on commercial banking deposits from an already negative 0.25% to a punishing -0.75%. That’s right, commercial banks will have to pay dearly for the privilege of holding francs. It’s the same sort of trick Federal Reserve officials have pondered employing to try to get banks to lend more.
Expect the unexpected. 2015 is shaping up to be that sort of year. One way to stay on top of breaking developments that affect precious metals markets is by keeping up with the various content pieces and market updates we put out each week, or by following our Twitter feed, @MoneyMetals. You’ll find a link to our Twitter page and other social media on our website, MoneyMetals.com.
We put a premium on education and content here at Money Metals, and we doubt you’ll find any other precious metals dealer in America putting out as much original content and educational material. We strive to offer that to our customers and readers, and providing high-end content is as central to our overall mission as is helping folks diversify their savings into physical gold and silver.
Well that will do it for this week’s Market Wrap Podcast, thanks for listening. This has been Mike Gleason with Money Metals Exchange reminding you that we remain fully committed to getting you the most value for depreciating dollar…with speed, with accuracy and with top notch service. Have a great weekend everybody.