Monday, August 14, 2006


'What's The Safe-Haven Currency'?

The greenback was stronger again today. "The greenback increased last week's gains against other major currencies Monday in New York trading. With no significant U.S. economic data scheduled to be released today, the market now turns toward PPI, Empire manufacturing and net foreign securities data due out Tuesday, as well as CPI data scheduled to be released Wednesday."

From Bloomberg. "Gold in New York fell for the third straight session as lower energy costs reduced the appeal of the precious metal as a hedge against inflation. Gold and oil have moved mostly in lockstep this year. Oil touched a two-week low after BP Plc said it will keep half of the production flowing at Alaska's Prudhoe Bay, the biggest U.S. field, and a cease-fire began in Lebanon."

"'You've got crude oil down rather substantially, and that's a negative influence on gold,' said Daniel Vaught, a commodity analyst at A.G. Edwards."

"Gold is 'at risk of softening further across the week following the mild easing of Middle East tensions and reduced U.K. terror alert,' said James Moore, a precious metals analyst. The U.K. today lowered the threat of terrorism in the country from the highest level."

"Gold for December delivery finished down $5.10 at $639.30 an ounce on the New York Mercantile Exchange, its lowest closing level since July 26. Silver rose 27.5 cents to close at $12.16 an ounce."

"Also Monday, October platinum closed down $21.10 at $1,233.30 an ounce and September palladium retreated by $4.00 to $318.30 an ounce, moving in tandem with gold."

"James Moore said the reduction of safe-haven concerns following the cease-fire may be offset by other worries. 'With Iraq still on the verge of civil war, and Iran and North Korea's nuclear policies a cause for concern, geo-political tensions are still extremely high, with some investors likely to view gold's current dip as a good area to enter the market,' he said."

"'The markets are being whipsawed by every minor news item and comment by anyone of any importance around the globe,' said Dale Doelling, chief market technician at Trends In Commodities. 'This makes for an extremely difficult trading environment.'
If current market conditions are short-lived and short-term trends emerge once again, 'the likelihood that the metals markets can push to new all-time highs will rise dramatically,' he said."

"Prices may see a 'major rally' in early September, according to Peter Grandich, who said he believes gold is going through a 'classic bull-market consolidation.' 'A new yearly high above $735 is likely before year's end thanks to a combination of geopolitical concerns here and abroad, strong seasonal demand and the recognition that the U.S. dollar is terminally ill,' he said."

And MarketWatch looks at the Swiss franc. "The Swiss franc has lost its status as safe-haven of choice, at least for now. The currency, known in the market as the Swissie, traditionally benefits in times of geopolitical uncertainty. But it has remained weak recently, even though rising Middle East tensions and waves of terrorist activity have put financial markets worldwide on high alert."

"'The recent escalating in geopolitical conflict has caused investors to opt for the U.S. currency,' said Boris Schlossberg, senior currency strategist at FXCM. 'Previously, the Swiss currency would have held this noble designation.'"

"The Swissie fell 0.7% against the U.S. dollar Thursday, followed by another 0.8% decline Friday. Against the euro and the British pound, the losses were even greater as the currency tumbled to an almost four-month low on the euro and more than two-year nadir versus sterling Friday."

"'People are sort of trying to figure out what's the safe-haven currency, but there is no consensus on this at this point,' said Robert Hormats, vice Chairman of Goldman Sachs International."

"Historically, the Swiss franc was considered the currency safe haven of choice thanks to the country's low inflation, current-account surpluses and once-vast gold reserves. It also benefited from Switzerland's centuries-old and jealously-guarded political and military neutrality, which has kept the land-locked country clear of external influences."

"But the Swissie's longstanding role as a safe haven started to wane in the mid-1990s. The European Union's increased integration, the gradual opening up of Switzerland's banking sector and the launch of the euro late in the decade all contributed, analysts said. Other factors included the rise of new derivatives to hedge risk and the modernization of a number of emerging economies."

"'The market has traditionally exaggerated the role of the Swiss franc as a safe-haven currency,' said Marc Chandler, global head of currency strategy at Brown Brothers Harriman."

"But views are as divided as ever. Even Jean-Pierre Roth, chairman of the governing board of the Swiss National Bank, said that the weakness of the Swissie this year was 'hard to explain.' Despite such 'potentially destabilizing factors' as the surge in oil prices, geopolitical tensions and profound global imbalances, 'over the past few months, the Swiss franc has even trended downward, a decline that is hard to explain given the low rate of Swiss inflation as compared to the rest of Europe,' Roth said at the general meeting of shareholders of the Swiss National Bank in late April."

"The reasons the franc hasn't strengthened amid the latest political unrest may also be 'more technical than fundamental,' Joel Nathan ForexFund's Ward said.
Currency is exchanged for many reasons, such as mergers and acquisitions, repatriation of corporate profits and institutional investing, 'but the deciding factor to holding a specific currency for long-term profits is its interest rate,' Ward said."

"BBH's Chandler, agreed, saying that the low interest rates in Switzerland have prompted many speculators to use the franc as an alternative to the yen as a funding currency in carry trades, in which investors make profits by borrowing low-yielders and reinvesting in higher-yielding currencies and assets."

"With the Swiss franc currently offering only 1.5%, while currencies such as the pound and the Australian dollar offer much higher yields, 'the Swiss franc becomes a currency more likely sold against the higher-rate currencies just to earn the interest rate differential,' Ward said."

"The breakdown of the strong relationship between the Swissie and gold also contributed to the currency's recent weakness, said Schlossberg. At one time, the franc was 40% backed by gold, but the Swiss government sold the nation's hefty gold reserve in 2005 and returned the funds to the country's cantons, he said.
As a result, 'while gold continues to remain the asset of choice in times of geopolitical stress...the Swiss franc can no longer benefit from the metal's massive appreciation,' said Schlossberg."

Having held some francs for years, I can attest to interest rates and the gold reserve sell-off as the reasons the SF is doing so poorly. I can't understand why the Swiss central bank did this, except maybe they are joining the fold. I'll probably keep what I have, but I haven't added francs in years and have no plans to.
"but the Swiss government sold the nation's hefty gold reserve in 2005 and returned the funds to the country's cantons "
Suckers! You believed the CB?? Yesssss Joooiiinnn Usssss. The soothsayer said. What a blunder. I remebered when they did that ,and,gold-eagle etc. were screaming ,you'll be sorry. It's coming home to roost. No more safe haven for you...Now why would you invest in yet another fiat? Where's the gold?
the PMs are very quiet. reminds me of when silver went to $8 and back to $6 in 2004(?). things weren't looking good. I remember PAAS was down 40%.
' Silver supplies fell by 594,648 troy ounces to 103.1 million troy ounces and copper supplies were unchanged at 6,756 short tons.'

....Got Silver?
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