Merryn's Blog

Why Japanese and Swiss intervention could be good for gold

Investors seeking safe havens have piled into the Swiss franc and Japanese yen. But the authorities don't like it. And as they try to put off new buyers, gold could be one of the only options left.

It's a bit of a compliment to be considered a safe haven. Or so you might think.

But the Swiss and the Japanese could live without the attention, frankly. Investors fleeing the euro and the dollar have been piling into the franc and the yen to try to protect their wealth. The trouble is, the export sector is a major contributor to both countries' economies. And a strong currency of course makes exports more expensive, which is bad news for anyone trying to make a living that way.

Subscribe to MoneyWeek

Become a smarter, better informed investor with MoneyWeek.

A volatile currency is also unpleasant for countries which aren't used to having to deal with it. Bloomberg notes that the franc has risen by 42% since the start of 2008, having been relatively stable for 10 years. The Organisation for Economic Co-operation and Development now reckons the franc is the most overvalued currency in the world.

So now both the Swiss and the Japanese have been taking action this week. Switzerland cut its base rate to 0.25% (from 0.75%) and began printing billions of francs. Japan meanwhile intervened in the currency market last night (our time).

Advertisement - Article continues below

Will it work? They picked the right time to do it they let the US debt ceiling nonsense get out of the way so that markets were no longer distracted by the high jinks, and fearful of the dollar. But at best, these sorts of gestures work only briefly.

As Philip Aldrick points out in The Telegraph, the Swiss National Bank sold $21bn of francs between March 2009 and June 2010. The Japanese sold about $7bn-worth of yen last September. Their attempts failed to keep their currencies down for long.

Yet there could be one beneficiary in the meantime: gold. Central banks are lining up now to buy the yellow metal, rather than sell it. So unlike with the Swissie or the yen, you're not going to see anyone piling in to try to drive the price down. Anyone hunting for a safe haven' might be even more tempted to put their money in gold now that even the safe' economies' central bankers are officially trying to devalue their currencies.




Commodities are dirt cheap – but is it time to buy?

Commodities are staggeringly cheap, says Dominic Frisby. By some measures, they are twice as cheap as they were at the turn of the century. But does t…
12 Jun 2019

Welcome to Currency Corner – your weekly guide to the world’s biggest market

Forex is by far and away the biggest market in the world, with an average daily trading volume of over $5trn per day. Here, Dominic Frisby looks at th…
3 May 2019

The nature of money

The best currencies are based on a strong democracy, strong institutions and a firm attachment to both the rule of law and the protection of private p…
28 Feb 2019

Most Popular

Personal finance

How much the state pension will rise by this year

While Boris Johnson promised to hold a full budget within 100 days of his election victory, many of the details of next year’s state pension increases…
10 Jan 2020

Currency Corner: how high can the pound go against the euro in 2020?

In the month in which we should finally leave the European Union, Dominic Frisby takes a look at the pound vs the euro and asks just how high sterling…
13 Jan 2020

Where will markets be in 2030? Here are 20 forecasts for the 2020s

A lot has changed in the last ten years – stockmarkets soared, technology transformed our lives and politics has changed beyond measure. Here, Dominic…
14 Jan 2020
Investment strategy

Running with the crowd is bad for your finances – here’s how to resist it

To be a good contrarian investor, you have to avoid being swayed by the crowd. John Stepek explains how to go about it.
3 Jan 2020