Physical demand for gold internationally remains robust – especially in Asia – which will support gold. This is seen in the premiums remaining elevated in Singapore and Hong Kong. Gold’s discount in Tokyo fell to its lowest since the end of 2010.
UBS confirm this morning what we have been experiencing in terms of increased customer demand for gold and an increasing preference for allocated gold.
UBS note that “the move to real assets such as gold in physical form signifies the heightened state of risk aversion at present.”
“The gold market remains underpinned by the movement to physical gold, which has persisted all week . . . European demand for small bars particularly, but also coins, remains very strong. As the week has progressed Asian physical demand, outside India, has been noticeably higher.”
The Swiss franc has fallen by another 0.4% against gold today and is down 5.7% week to date against gold.
Pegging the franc to the euro would take time and would face steep legal and political hurdles – a change to the Swiss constitution would be necessary to begin with.
Gold in Swiss francs – 5 Day (Tick)
A peg may not work as the SNB would have to provide liquidity to defend the peg and history shows (such as the European ERM) that pegs are rarely successful in the long term.
The Swiss franc’s reputation as a safe haven is gradually being lost and if a government and central bank are determined to debase their national currency and ensure it is a not a global safe haven then it is within their powers to do so.
Gold on the other hand has been empirically shown to be a safe haven and monetary asset.
Swiss Francs Performance against G10 and Gold
Unfortunately, many today know the price of everything and the value of nothing. Gold’s value is that it is a safe haven asset. These are not the claims of a vested interest but an empirical fact backed up by much international academic research including from Trinity College Dublin’s Dr Brian Lucey and Dr Constantin Gurdgiev.
The wise old adage that you “put 10% of your wealth in gold and hope that it does not work” has never been more apt.
Indeed, many would argue that given the scale of the global debt crisis and the real risk of contagion, that allocation could be higher.