As Swiss devalue their franc, gold may be last currency standing

Section:

Another Reason to Buy Gold: Franc Losing Safety Status

By Jeff Cox
CNBC.com
Tuesday, September 6, 2011

http://www.cnbc.com/id/44410858

Just as talk had begun to intensify about a gold bubble building, the metal got another boost today when the Swiss National Bank announced measures to decrease the value of the franc.

The SNB's move was widely viewed as positive for gold because the metal will gain even more popularity as a safe-haven investment of choice.

For the past 14 months -- and, in fact, since Lehman Brothers failed in September 2008 -- the franc has experienced a parabolic rise as financial instability beset many of its neighbors as well as the US.

But the Swiss central bank, faced with worries that the ever-strengthening currency would jeopardize the country's export-based economy, announced an aggressive cap for the franc's value against the euro.

Consequently, the currency tumbled more than 8 percent in Tuesday trade. Gold, while down narrowly amid a global asset selloff, is expected to fare well in the days ahead.

"With Japan massively intervening in the (currency) market and the Swiss effectively curbing the safe-haven status of the Swiss franc today, we only really have gold as the last-standing safe-haven currency around," David Rosenberg, senior economist and strategist at Gluskin Sheff in Toronto, wrote in his daily note. "While the US dollar has liquidity, it unfortunately has a debt burden alongside it that gold does not."

... Dispatch continues below ...



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Sona Drills 85.4g Gold/Ton Over 4 Metres at Elizabeth Gold Deposit,
Extending the Mineralization of the Southwest Vein on the Property

Company Press Release, October 27, 2010

VANCOUVER, British Columbia -- Sona Resources Corp. reports on five drillling holes in the third round of assay results from the recently completed drill program at its 100 percent-owned Elizabeth Gold Deposit Property in the Lillooet Mining District of southern British Columbia. Highlights from the diamond drilling include:

-- Hole E10-66 intersected 17.4g gold/ton over 1.54 metres.

-- Hole E10-67 intersected 96.4g gold/ton over 2.5 metres, including one assay interval of 383g of gold/ton over 0.5 metres.

-- Hole E10-69 intersected 85.4g gold/ton over 4.03 metres, including one assay interval of 230g gold/ton over 1 metre.

Four drill holes, E10-66 to E10-69, targeted the southwestern end of the Southwest Vein, and three of the holes have expanded the mineralized zone in that direction. The Southwest Vein gold mineralization has now been intersected over a strike length of 325 metres, with the deepest hole drilled less than 200 metres from surface.

"The assay results from the Southwest Zone quartz vein continue to be extremely positive," says John P. Thompson, Sona's president and CEO. "We are expanding the Southwest Vein, and this high-grade gold mineralization remains wide open down dip and along strike to the southwest."

For the company's full press release, please visit:

http://sonaresources.com/_resources/news/SONA_NR19_2010.pdf



To be sure, the dollar was among the few winners immediately after the SNB announcement, gaining more than 1 percent against a basket of the world's currencies in risk-off trading. The so-called commodity currencies -- from Canada, New Zealand and Australia -- also fared mostly well.

But gold possesses the added advantage of independent movement, particularly important when most other market assets are moving in the same direction, a trend known as correlation.

"You're seeing gold becoming increasingly credible as that safe haven," said David Rodriquez, quantitative strategist at DailyFX in New York. "It's defied broader market deleveraging, which is pretty surprising. Given what we've seen with difficulties in fiat currencies, I don't see it going away any time soon."

Rodriquez describes himself as normally "the opposite of a gold bug" because he anticipated that when economic conditions collapsed gold would go down as well.

"The S&P 500 and the Dow are off substantially from recent record highs and gold is setting a fresh record high," he said. "So it's not really a lot of speculative capital in gold. It's withstanding sudden bouts of deleveraging across financial markets."

Hedge fund manager Dennis Gartman, who writes the widely followed Gartman Letter, speculated this morning that a major nation holding gold would begin selling, setting off a potential fire sale.

However, he said in a subsequent interview that the SNB announcement was "the odd event" and that gold is holding up because of its safe-haven appeal.

"You have just taken the franc and turned it from being a place where capital will go to and you've now effectively brought the Swiss (franc) into the euro zone," Gartman said. "They did it surreptitiously and without asking the electorate."

Gartman said he regretted ditching two-thirds of his position when gold broke the $1,900/ounce barrier but has replaced half those positions since. He recommends holding gold in non-US currency that yields more and has greater stability.

Despite misgivings about what central banks' actions could have on gold, the narrative following the SNB move was that the metal had survived and likely would scale higher.

"To the degree that solvency ranks high and counterparty risk ranks high among individual investors, those concerns are going to drive money into the metals market," said David McAlvany, CEO of McAlvany Financial Group, a precious metals brokerage based in Durango, Col. "Maybe the primary question is: How low can various global currencies go in an effort by the world's monetary authorities to bring back financial stability and growth?"

Indeed, the threat looms of a global competitive devaluation -- where central banks continue to debase currencies in an attempt to gain a leg up in the world trade markets -- thus making gold even more valuable as an inflation hedge. Worries over global recession and the debt crises in peripheral Europe have only enhanced gold's attraction.

"Fiscal measures and austerity measures are not popular, which means that really the only place you can go are monetary measures," McAlvany said. "So if concerted or competitive currency devaluation is part of the next two weeks, two months, two years, then again you're asking the question: How much is that devaluation reflected in the price of gold today?"

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Lewis E. Lehrman on How to Solve the U.S. Debt Problem

Lewis E. Lehrman, chairman of the Lehrman Institute, sponsor of The Gold Standard Now project, advises that to reduce the $1 1/2 trillion U.S. deficit, the Republican Party must initiate an investment program.

Working Americans are not saving, which enables the banks to lead the country into a cycle of debt, leverage, boom, panic, and bust.

Lehrman says: "Eliminating the budget deficit of a trillion and a half dollars cannot be done overnight. The proposal by U.S. Rep. Paul Ryan was very dramatic -- one Republican called it radical -- but it was not happily received. The solution, of course, is to design an American program for prosperity, because you can solve these entitlement problems with a growing economy. We need a tremendous program of investment, and investment comes from savings. When you pay savers, middle-income professionals, and working people 0 percent at the bank, you are not going to encourage them to save. Then we are left with a bank cycle of debt, leverage, boom, panic, and bust."

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