The Bullion Desk

Swiss National Bank action to support gold as safe haven – Gartman

January 23rd, 2009

By Melanie Burton

London, 22 January 2009 - Suggestions that the Swiss National Bank (SNB) is primed to print currency to avoid deflation are likely to encourage investors seeking safe-haven surity from the Swiss franc to switch to gold, Dennis Gartman of industry newsletter TheGartmanLetter, said on Thursday.


"The SNB is now embarking...or is prepared to embark...upon a tacit devaluation of the Swiss franc, those who had owned the CHF as a "hedge" against currency weakness in the US and elsewhere and who had owned the franc as a refuge, will turn to gold instead," said Gartman.


"It is the logical substitution. What Mr. Hildebrand has said is the singularly more bullish comment on gold we can recall," he added.


Gartman referred to comments by Swiss National Bank Vice-President Philipp Hildebrand, who suggested the SNB would print more currency and possibly take toxic loans off faltering books, which sent the Swiss Franc into free-fall on Wednesday although it has since stabilised.


"The SNB is able to sell unlimited Swiss francs versus another currency. In an extreme case, it can commit itself at the same time to buying unlimited currencies at a fixed-exchange rate," Hildebrand said.


Like gold, the Swiss franc is viewed as a safe haven in times of economic upheaval, and any depreciation of the currency's value is likely to erode this demand.


Currency plays have already affected the gold market this week. Traders said gold prices rose sharply on fund buying, as investors moved out of the weakening sterling and into gold ETFs after the near collapse of Royal Bank of Scotland threatened to tip the UK banking sector into another round of turmoil.


Already, some 111 tonnes of gold are held in Swiss bank vaults to back exchange-traded funds, with the two main products run by Zurich Cantonal Bank and investment fund Julius Baer. On a per-capita basis, this far outranks the 806 tonnes held in the US-based SPDR Gold Trust, the world's biggest ETF.


While there has been a surge worldwide in gold ETF interest, as investors look to the safe harbour of a hard asset that is no one else's liabilty, ZKB spokesman Hugo Stalder said he didn't think the gold ETF was cannibalising Swiss franc investment.


"This has got to do with the financial crisis that is going on...all the comments you hear from the banks," he said.


In dollar terms, spot gold is now trading at $850 an ounce, some 17.6 percent below its all-time high of $1,032.60 touched on March 17, 2008.


In Swiss franc terms, gold has appreciated around seven percent this week as Swiss frank has fallen, now hovering around $990 an ounce, off by 5.3 percent from its October 6 all-time high of $1,046.

The Bullion Desk
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