Swiss move to halt franc rise to boost gold over long run: analysts
By Myra P. Saefong and William L. Watts, MarketWatch
SAN FRANCISCO (MarketWatch) — Gold futures dropped by as much as $79 an ounce Wednesday to trade below $1,800 an ounce, extending a retreat as global equity markets scored gains, depriving the yellow metal of its safe-haven appeal.
December gold futures GC1Z -2.97% was last down $66.20, or 3.5%, at $1,807 an ounce on the Comex division of the New York Mercantile Exchange. Early in the U.S. session, it dropped $79.50 to touch an intraday low of $1,793.80. Futures prices haven’t closed under $1,800 since August 29.
Asian and European equities posted strong gains, while U.S. stocks headed higher.
Gold futures notched an intraday record of $1,923.10 an ounce on Tuesday, but ended lower after a feared rout in U.S. equities didn’t materialize.
Some strategists said the decision by the Swiss National Bank on Tuesday to cap the value of the Swiss franc EURCHF +0.14% versus the euro is a long-term positive for gold. The SNB vowed to buy “unlimited quantities” of foreign currencies, if necessary, to ensure the euro doesn’t dip below CHF1.20.
The decision effectively robs traders of a long-favored safe haven, which will further stoke the attractiveness of gold and other perceived havens during market turmoil.
But in the shorter term, the SNB’s move may be putting the brakes on gold as some investors had been using the strong franc to make their purchases in gold.
“Part of the gold momentum story was simple price arbitrage: to buy something in a strong currency and then sell in a weaker currency, thus generating a profit on the difference,” said Richard Hastings, a macro strategist at Global Hunter Securities.
“The swiss franc was probably a major vehicle in this trade, as was the yen, but now the outlook is a much, much weaker swiss franc and a slightly weaker yen — so where’s the carry trade for gold?” he said. “The new Swiss franc peg totally damages the correlation and, therefore, it hurts gold’s momentum. Next support at approximately $1,775.” See a video interview with Hastings on the Swiss franc/gold correlation.
Strategists at Barclays Capital said the move by Switzerland is unlikely to quell global market turmoil, because the Swiss economy is too small to have a significant impact on the key problems facing global asset markets — the euro-zone crisis and weakening global growth.
“What it does do is to reduce the number of ‘safe-haven’ assets: Admittedly, only by one, but they have become increasingly scarce. The measure therefore adds to the attractiveness of the U.S. dollar, the Japanese yen and gold, in our opinion,” the strategists said in a note.
Silver followed gold lower, with the December contract SI1Z -1.17% down $1.03, or 2.5%, at $40.84 an ounce. October platinum PL1V -1.64% also fell by $37.60, or 2%, to $1,820.60 an ounce, but December copper HG1Z +1.82% tacked on 8 cents to $4.13 a pound and December palladium PA1Z +0.43% added 45 cents to $750 an ounce.
